Capital III, Chapter 40 - Part 5

It will normally be the case that the more intensive application of capital will occur on the better soil, because that is where the greatest immediate benefit can be obtained. That may not be the case in respect of those investments that bring about a permanent improvement, for example, large scale drainage works.

“When, after the abolition of the Corn Laws, cultivation in England became still more intensive, a great deal of former wheat land was devoted to other purposes, particularly cattle pastures, while the fertile land best suited for wheat was drained and otherwise improved. The capital for wheat cultivation was thus concentrated in a more limited area.” (p 680)

In cases like this, its new, more fertile land that is brought into cultivation, that constitutes an additional surplus profit, which thereby can become rent. Its not, in this case, that formerly rentless land starts to produce rent. There is here an absolute rather than just relative increase in the surplus product per hectare.

If demand rose to such a level that it could not be met, even by the cultivation of the worst soil, A, and so the market price rose above £3 per Kilo, this would mean that even land type A was producing a surplus profit, and rent. This might be met by the investment of additional capital to increase supply, but whether this additional investment was on land type A, B, C or D, assuming falling marginal productivity of capital, it would mean that overall productivity fell, and so the price of production, and market price would rise.

If this situation continued, this higher price would mean that the value of labour-power increased, as workers had to pay more for bread etc. Wages would rise and profits fall.

“Differential rent would then increase together with a falling rate of profit.” (p 681)

Ricardo believed that this particular case, where demand outstrips supply, so that even the worst land produces a surplus profit, and where additional investment of capital, on all lands, results in falling productivity, a fall in the rate of profit, increased prices, and higher rents, was the normal situation, and the basis of Differential Rent II.

This situation would also arise, where only land type A was cultivated, and where there was falling marginal productivity of capital.

“Here then, in the case of differential rent II, one completely loses sight of differential rent I.” (p 681)

But, in fact, except for the situation described above, the falling marginal productivity of capital, although it results in relatively reduced surplus profits, does not change the rate of profit, nor the regulating price of production.

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