Rent Seeking: Taking Without Giving - YouTube

In economics and public choice theory,  rent-seeking is a behavior that is aimed to  

increase one's existing wealth without creating  new wealth for others. In other words, it 

describes the tendency of some people to  seek profits without doing any real work.  

A classic example of rent-seeking is the story  of a lord. The lord inherited a lot of land  

and wealth and never worked a day in his life.  However, as the lord knows of another man who  

has even more than him, being wealthy isn’t  enough. He needs more and he has an idea.  

The lord sets up a chain across the  river that flows through his land  

and hires a collector to charge fishermen  a fee if they want to pass through.  

There is nothing productive about the chain.

The lord has made no improvements to the river  and is not adding value to society in any way,  

directly or indirectly, except for himself.  

All he is doing is finding a way to make  money from something that used to be free.

To society there are three costs to this  

First, the direct costs . The fisherman, who now  has to pay a fee, needs to sell the fish at a  

higher price to make a living. On the market  fish become more expensive for everybody.  

Then the opportunity costs . The lord invests  his money and resources into equipment that  

adds no value to society , instead of  investing into something meaningful,  

such as fixing up the broken school building.  

Lastly, the moral costs. The fisherman feels  that paying for something that used to be free  

is unfair and, following the lord’s example, is  more likely to engage in rent-seeking himself.  

What if he were to eliminate all his  competitors and then increase prices?  

The fisherman turns to his friend — a smooth  talker who cares for the environment — to  

help him convince the lord of an idea: If  a fence were to be running down the banks,  

it would protect the river from overfishing  because access would be limited. 

When rent-seekers and moral advocates lobby  in teams, economists speak of bootleggers  

and baptists. The lord agrees and soon  after the river is being protected.  

Once the fence is built, only a few  fishermen are able to access the  

river . That means our fisherman not only has more  

fish than ever before , but he can also  keep selling them at very high prices.  

To keep it that way, the fisherman and his  lobbyist soon form the fishery department  

under the royal patronage of the lord . From  this day on, only those who pay a license fee  

are allowed to fish in the river. The lord  gets a nice cut for his growing empire  

On the market the fish has become so  expensive that the commoners begin to 

complain. Unfortunately  there is little they can do.  

Without ever taking notable risks  the landlord, the lobbyists,  

and the fisherman get richer every day. Or  as economists would say, without having skin  

in the game, they create a lot of wealth  for themselves but no wealth for society.  

In theory, rent-seeking behavior reduces economic  efficiency through the misallocation of resources.  

It also hinders the creation of wealth, reduces  government revenue, increases income inequality,  

and potentially leads to national decline. The term itself was coined by the British  

economist David Ricardo, who had built his  ideas on the thoughts of the Scottish economist  

Adam Smith. The original meaning of "rent" does  not refer specifically to payment on a lease,  

but to gaining control of land  or other natural resources.  

In 1776 Adam Smith wrote: “As soon as the land  of any country has all become private property,  

the landlords reap where they never sowed, and  demand a rent. The wood of the forest, the grass  

of the field, and all the natural fruits of the  earth, which, when the land was incommon, cost  

the laborer only the trouble of gathering them,  come, to have an additional price fixed upon them.

He must then pay for a license and must give  up to the landlord a portion of what his  

labor either collects or produces. This  portion constitutes the rent of land.”  

How about you, where do you see rent-seekers? 

Are they in your government  and in the corporations? 

Or do you see them in the streets in  the form of gangsters or corrupt police? 

Maybe you even have your own personal story where  you seek to profit without adding any value?

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