Capital III, Chapter 39 - Part 9

Marx then analyses the situation where only the original lands, A-D, are cultivated, but where productivity rises. A now produces 2 kilos rather than 1, B 4 rather than 2, C 7 rather than 3, and D 10 rather than 4. Total Production rises from 10 to 23 kilos, and is equal to demand, as population rises and market price falls.

Type of Soil	Product		Capital Invested	Price of Production per Kilo	Profit		Rent
	Kilos	£'s			Kilos	£'s	Kilos	£'s
A B C D	2.00 4.00 7.00 10.00	60.00 120.00 210.00 300.00	50.00 50.00 50.00 50.00	30.00 15.00 8.57 6.00	0.33 2.33 5.33 8.33	10.00 70.00 160.00 250.00	0.00 2.00 5.00 8.00	0.00 60.00 150.00 240.00
Total	23.00	690.00	200.00		16.33	490.00	15.00	450.00

Marx points out that the numbers used are made up, but based on rational assumptions. The first assumption here is that agricultural improvements affect different types of land differently. In this case, and this is usually true, these improvements bring about a larger rise in productivity on the better land than on the poorer land. As a result, the better land produces more surplus profit and rent on it rises. If, however, improvements caused a bigger rise in productivity on the worst land relative to the better, the surplus profit produced on the better land, would fall, causing rents on the better land to fall with it.

The second assumption is that demand keeps pace with the increased supply due to the productivity gains. This increase need only be gradual, as population rises, living standards rise, and the productivity gains reduce food prices.

Marx comments,

“Secondly, it is not true that the consumption of necessities of life does not increase as they become cheaper. The abolition of the Corn Laws in England proved the reverse to be the case (F. Newman, Lectures on Political Economy, London, 1851, p.158. — Ed.); the opposite view stems solely from the fact that large and sudden differences in harvests, which are mere results of weather, bring about at one time an extraordinary fall, at another an extraordinary rise, in grain prices. While in such a case the sudden and short-lived reduction in price does not have time to exert its full effect upon the extension of consumption, the opposite is true when a reduction arises from the lowering of the regulating price of production itself, i.e., is of a long-term nature.” (p 657)

However, today in developed economies, the introduction of family planning means that population grows much more slowly than in Marx's time, and rises in living standards are usually reflected in a noticeable reduction in the proportion of family budgets devoted to food, and within that an increased expenditure on more expensive food types and reduction in cheaper foods. In 2005, Chinese consumption of meat was 2.4 times what it was in 1990, milk 3 times, fruit 3.5 times, vegetables 2.9 times, fish 2.3 times, whilst its consumption of cereals, mostly rice, fell by 20%. 

Its not a matter of consumption not increasing as prices fall – though this can also be the case in respect of “inferior goods” - but that, due to varying elasticities of demand, demand does not rise proportionate to the fall in price. Marx was aware of the concept of price and income elasticity, as witnessed by many of his statements in relation to demand. For example, he writes in Theories of Surplus Value Part III,

“The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.” 

However, as noted previously, in relation to Chapter 10, he was unable to develop these ideas, because, at the time he was writing, the mathematical tools to determine price and income elasticities had not been developed – the basic mathematics of differential calculus existed, but had not yet been applied to economic analysis. That did not happen until Alfred Marshall's “Principles of Economics” in 1890.

Marx also notes that the demand for wheat may rise because it is used in beer and brandy making, whose consumption can increase greatly. Today, this also applies to the use of grains as livestock feed, as consumption of meat and poultry rises, relative to cereals, and even to the use of grain for the production of ethanol etc. Demand can also rise as a result of exports of grain, and at certain stages, wheat may replace other grains in workers diets.

On the basis of these assumptions, the table shows that the rise in productivity thereby results in an increase in total output from 20 to 23 kilos; the price per kilo falls by 50% from £60 to £30; rent on land B remains constant, but rises by 25% on C, 33.3% on D, and total rent rises from £360 to £450, i.e. by 25%.

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