Tuesday, 21 October 2014

The Law Of The Tendency For The Rate Of Profit To Fall - Part 53

Effects On The Rate of Industrial Profit (2)

Marx sets out two forms of rent – Absolute Rent and Differential Rent, with the latter being subdivided itself. Absolute Rent arises, because land is limited in supply, and its ownership is monopolised. That is why although land has no value, because it is not the product of labour, it has a price. In the same way that capital has no value as a commodity, because its use value – the ability to self-expand – is not the product of labour, it has a price as a commodity – interest – so land, as a commodity has a price – rent, or capitalised rent. The owner of land can sell it as a commodity, and thereby obtain a market price for it. And, if they wish to sell the use value of this land only for a given period of time, in the same way that money-capitalists loan out capital, i.e. to lease it, then the owner of the land will charge a rent for doing so.

The Differential Rent, however, arises because a specific piece of land offers the potential to produce higher than average profits from its use. That may be because the land is more fertile, and so produces a higher quantity or quality of crops for any given advance of capital in their production. This applies equally to where the “crop” is some form of mineral or raw material extracted from the ground. Similarly, the higher profits may arise, because the land has some natural benefits, such as the existence of streams to be used for the production of energy by water-wheels, or exposure to winds for energy production by windmills and so on. Or the higher profits may arise, for example, in the case of land in a high street, where the greater number of passers by, provides a higher potential for customers. The landlord then charges a differential rent, which absorbs this additional profit afforded by the use of this particular piece of land.

The rise in social productivity, can be manifest in the fact that the specific advantages of any particular piece of land, may be minimised or cancelled. For example, improvements in agricultural technology and science meant that capital could be employed to improve soil fertility, on land where it was below average. Capital could be used to improve drainage etc. and thereby raise the productivity of poorer pieces of land. By using capital to even out these natural advantages and disadvantages, the basis of differential rent is reduced. However, the greater potential for profits that arise might cause absolute rent to rise, depending upon the demand and supply of land.

The increase in productivity means on the one hand that a given area of land will produce an increased mass of use values, which is the same as increasing the quantity of land supplied. This will act to reduce rents, and the price of land. On the other hand, this rise in productivity, which increases the quantity of use values produced, thereby increases the mass of surplus value, which can be produced. To that extent, it increases the demand for land in order to be able to extract this surplus value. That acts to raise the price of land, and rent.

Other consequences of the rise in social productivity include the improvement in transport and communications, which also leads to the opening up of new territories. This directly increases the supply of land available, and thereby acts to reduce land prices and rents. Other changes mean that lower cost land can be utilised. For example, with an increased number of people with cars, retailers were able to move to out of town centres, and locate on low cost out of town retail parks. A similar effect arises with virtual land, i.e. the Internet. Retailers no longer need the same number of size of physical stores, because they can sell commodities on line. They only need warehouses to store commodities during the period between production and shipping. The Internet Service Providers then become the landlords, renting out space on the internet. As this space is effectively limitless, it does not have the same monopoly constraints that physical land does that are the basis of Absolute Rent.

It is, of course not just retailers that are able to benefit from this consequence of a rise in social productivity. As an increasing amount of employment becomes that of commercial workers, the need for physical office space also diminishes, as these workers can work from home, with access to a computer, phone and internet connection. Even, more complex functions, for example, that of a surgeon can be performed remotely. Perhaps the most visible example, of that is the use of remotely controlled drones whether by the military, or for more productive purposes, or even Amazon's proposals for their use as delivery vehicles. All of these functions can be performed by a skilled worker who can be located anywhere in the world, thereby reducing considerably the demand for land in any specific location, and consequently reducing rents.

Like interest-bearing capital, land has no value, and can, therefore, add no new value to the products it helps to produce. Unlike merchant capital, land does not facilitate the realisation of value and surplus value either, nor does it facilitate the circulation of money and money-capital, and reduce the costs of circulation. Rent, like Interest is merely a deduction from industrial profit. To the extent that both are reduced, the mass of industrial profit rises, and so the rate of industrial profit rises. In other words, the amount of money-capital available to productive and merchant capital for reinvestment rises.

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