Thursday, 7 July 2016

Capital III, Chapter 39 - Part 6

If demand continues to rise, (this is what economists refer to as a shift in the demand curve, i.e. demand rises at every price, as opposed to a movement along the demand curve, where demand rises as price falls and vice versa) the market price will move higher. When it reaches £30, it becomes profitable for land B to be brought into production. Now, land C makes a surplus profit, of £10 per kilo, and landlords levy a rent equal to this amount on land type C. Land type D now makes a surplus profit of £15 per kilo, causing the rent to rise to that level.

If demand continues to rise, and prices reach £60 per kilo, land type A is brought into cultivation. Now land type B produces a surplus profit of £30 per kilo, land C of £40 per kilo, and land D of £45 per kilo. Rents are then levied on each of these type of land accordingly.

Marx points out that things are not quite this straightforward. If initially, the rate of profit for D was 20%, then its total profit on its production of 4 kilos was £10. However, measured in quantity of wheat this £10 represents far more when the price was £15 (0.66 kilos) than when it is £60 per kilo (0.167 kilos).

But, since wheat constitutes a portion of the value of labour-power, the rise in price of wheat means that the value of labour-power rises, and so the rate of surplus value falls. As a result, the rate of profit must also fall, as the price of wheat rises, and this consequently feeds back into all of these calculations. Incidentally, this again shows that Marx was well aware that output prices are simultaneously input prices, and both have to be transformed at the same time, to avoid error.

Suppose now the process moves in the opposite direction, from A, the worst land, to D, the best land. In this case, the market price starts at £60 per kilo. Demand rises, and causes the market price to initially rise above this level. But, now, land B is brought into cultivation, so that the excess demand is met, and the price drops back to £60. The price of production, for land B, is £30, so it makes a surplus profit of £30 per kilo, giving rise to a differential rent of that amount.

If demand continues to rise, the price rises above £60 again, but now land C is brought into cultivation, soaking up the excess demand. Land B continues to pay a rent of £30 per kilo, and land C a rent of £40 per kilo. Finally, land D is brought into cultivation and pays a rent of £45 per kilo.

“... it is assumed throughout that the market-price remained at 60 shillings, although C and D produced wheat having an actual value of 20 and 15 shillings per quarter respectively, because the supply of the one quarter produced by A was needed as much as ever to satisfy the total demand. In this case, the increase in demand above supply, which was first satisfied by A, then by A and B, would not have made it possible to cultivate B, C and D successively, but would merely have caused a general extension of the sphere of cultivation, and the more fertile lands might only later come under cultivation.” (p 654)

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