Wednesday, 20 July 2016

Capital III, Chapter 40 - Part 3

Marx describes what he considers to be then the difference between capitalist agriculture and capitalist industry, that means that unlike industry, it is the least efficient producers, rather than the average producers, that determine the price of production.

“The capitalist mode of production spreads in agriculture but slowly and unevenly, as may be observed in England, the classic land of the capitalist mode of production in agriculture. In so far as the free importation of grain does not exist, or its effect is but limited because the volume is small, producers working inferior soil, and thus under worse than average conditions of production, determine the market-price. A large portion of the total mass of capital invested in husbandry, and in general available to it, is in their hands.” (p 677)

I'm not convinced this argument is valid, even at that time, but it clearly does not apply today. Marx elaborates on this point further.

“It is true that the peasant, for example, expends much labour on his small plot of land. But it is labour isolated from objective social and material conditions of productivity, labour robbed and stripped of these conditions. 

This circumstance enables the actual capitalist tenants to appropriate a portion of surplus-profit — a fact which would not obtain, at least so far as this point is concerned, if the capitalist mode of production were as evenly developed in agriculture as in manufacture.” (p 677)

But, what is usually the case, is that these small peasants exist merely as subsistence farmers, barely able to meet their own needs, let alone produce an average profit, and so it is only the more productive capitalist framers – more productive either because they have better land, or more capital to apply – that can make average profit.

“It is then evident that differential rent II is merely differently expressed differential rent I, but identical to it in substance.” (p 678)

Marx's formulation here is a bit confusing. Considering the situation described in the table provided earlier, where successive amounts of capital are invested in land type D, he says,

“If the same capital of £10, which is shown in Table I to be invested in the form of independent capitals of £2½ each by various tenants in each acre of the four soil types A, B, C and D, were instead successively invested in one and the same acre D, so that the first investment yielded 4 qrs, the second 3, the third 2, and the fourth 1 qr (or in the reverse order), then the price of the quarter furnished by the least productive capital, namely = £3, would not yield any differential rent, but would determine the price of production, so long as the supply of wheat whose price of production is £3 were needed.” (p 678)

What he means here is that the final increment of capital, which only produces an additional quarter of wheat, thereby does not produce at the theoretical level, any differential rent. It is confusing to the extent that the rent paid by the farmer on this land D, would have been set in advance, and is rent on the land not its produce. The rent having been determined for the period of the lease, would not rise or be paid on particular quantities of wheat produced. What has to be remembered here, is that the term rent is being used in its strict economic sense, not as an actual payment to the landlord. Rent here is synonymous with surplus profit.

So, in terms of the actual rent paid it would not be paid on any of the other additional amounts produced in the preceding years either. Moreover, the example itself can be understood in two different ways that lead to different conclusions. For example, if it is understood as demonstrating the marginal productivity of capital, by showing the different levels of output that can be achieved as a result of applying these different quantities of capital in one year, we get a result whereby this piece of land produces 10 quarters of wheat per year. To produce it requires £10 of capital, thereby giving 1 quarter per £1 invested, as opposed to the initial position of 4 quarters for £2.50 of capital, or 1.6 quarters per £1 of capital.

As an average cost this is £0.625 per quarter, which is still below the £2.50 per quarter cost on the worst land A, and the price of production of £3, so this would then, when a new lease is drawn up, be subject to differential rent.

However, if its viewed, that the £10 is successive investments of £2.50 of capital over 4 years, with the output falling each year, from 4 quarters to 1 quarter (perhaps because of over farming and destruction of soil fertility) then a completely different situation exists because the land has been reduced to the quality of land type A. It produces now only 1 quarter for the £2.50 of capital invested in year 4, and so no surplus profit is created, meaning it is no longer rent producing land.

I'm assuming, therefore, that Marx intends the first interpretation, so that we have.

Table 4.

Average Profit

In other words, the effect of these additional investments of capital is to bring about diminishing returns, in relation to output, with a consequent effect on the rent that would be payable on the land, were it determined at that point. The cumulative effect is to create a piece of land producing 10 kilos of wheat, and on which the differential rent would amount to £18.00, which is also the total of rent that would be payable on the four separate pieces of land, A-D, previously considered (Tables 1 – 3).

In addition, the total profit, and the surplus profit is the same as in those previous examples. There is no effect on the rate of profit of 20%, as a result of these investments, because the average rate of profit is determined in industry, and so with the other assumptions made, this gives a constant price of production of £3 per kilo.

If additional investment in land type D, for example, the second investment, which produces an additional 3 Kilos, removes the need for the supply from land type A, so that it goes out of production, this would then change the ruling price of production, for wheat, which would affect the level of surplus profit and rent.

If the price of production of land type B then became the regulator, it would be £1.50 per Kilo, rather than £3. We would then have land type D producing 10 Kilos, with an average cost of £1 per Kilo. The value of the output would now be £15, giving a profit of £5. The average profit of 20% on £10 is £2, giving a surplus profit now of just £3, compared to the previous figure of £9.

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