Surplus Productivity

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The principle of Surplus Productivity is also known as the concept of the agents of production.  It is used to determine the value of land based on the fact that after labor, management, and capital are paid, the balance of production is attributable to the land.

 

The expenses of ownership are:

 

Capital
Labor
Management
Land

 

When the expenses of ownership are deducted from net income, the remainder is surplus productivity.  Surplus productivity is considered the investor's return of the land.

 

Labor includes wages and other payroll expenses not including management.  Labor also includes operating expenses that represent a form of labor such as maintenance, repairs, garbage collection, etc.

 

Management includes all cost for coordination. The owner manages small companies.  Salaried management personnel manage large companies.

 

Capital includes the cost of buildings and equipment required to keep the enterprise functional.  In addition to the buildings and equipment, capital includes maintenance, insurance, interest, principle, and like items required to maintain and pay for capital equipment.

 

Whatever return is left after the other three agents of production are paid in full is attributable to the land.  This residual, if properly interpreted, can be used to determine the value of the land.

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