The peculiarity of ideas about land is closely tied to the notion that the value of anything is determined by the costs incurred in producing it. The classical economists who came up with this formula hit a dead end when they tried to apply it to land. Ricardo’s way out was the idea of land rent—and thus the classification of land, as a commodity, into a special category that does not obey the general rules. In reality, the idea that costs play a fundamental role is wrong with respect to all prices. The price is formed by supply and demand, and, conversely, costs depend on price, not the other way around. When deciding to produce something, the entrepreneur first considers the prices that already exist on the market, and based on them determines his costs.
And if (at least in words) modern economists have abandoned the idea that prices are determined by costs, then the concept of land rent lives on, flourishes, and is one of the principles on which any legislation concerning land is explicitly and implicitly based. The owner of land did nothing and receives his income “for free”—so thinks the general public and the legislator. In reality, the value of any commodity is determined not by costs and not by rent, but by other people and their needs in this particular place and at this particular time. Realtors know this well. “The value of land plots is nothing other than the anticipated value of all acts of land use taken together, determined at the given moment”—wrote Carl Menger, that is, it is determined by those needs and the value of what you intend to obtain from the land.