Wednesday, 27 July 2016

Capital III, Chapter 41 - Part 3

The small peasant farmer, such as those that set themselves up in the US, and other colonies, having started out as workers, had no real access to capital. The main factor in their production was their own and their family's labour. The major part of the product of that labour went directly into reproducing it. In other words, they produced food they needed in order to live, so that they could continue to work, and to the extent they could produce other goods, they required, the rest of their labour fulfilled that object too.

As with the examples given previously, therefore, in relation to the production of value by Robinson Crusoe, via his labours, this labour, expended by the small producer, in so far as it creates these items of consumption, constitutes his revenue, as opposed to that portion of his labour-time required to produce and replace his means of production, and any surplus labour-time remaining after these necessary functions have been completed.

The consumption fund they create, i.e. that part of their production designed for their own consumption, is the equivalent of wages. It is both the revenue they pay to themselves, and its physical equivalent in the form of the articles of consumption.

“In the case of colonists, and independent small producers in general, who have no access to capital at all or only at high interest rates, that part of the output which represents wages is their revenue, whereas for the capitalist it constitutes an advance of capital.” (p 690)

But, its precisely for this reason that the assumption that Marx makes, having inherited it from Ricardo, that the production on the worst land must still obtain the average profit, can't hold. Capitalists of all sizes, cannot simply move their productive-capital instantaneously from one enterprise to another. The small producers described by Marx here, are really labourers tied to their particular piece of land, happy if they can make something above what they might have been paid as wage labourers. They are like all those workers today who, unable to find proper full-time employment, become self-employed, scraping an uncertain living as window cleaners etc.

But, very large capitals, having been invested, cannot simply shut up shop and move elsewhere, just because the rate of profit has fallen below the average. So, at any one time, capitals of varying sizes will be producing at different levels of efficiency, in all industries, including agriculture, some making surplus profits and some below average profits. Only in exceptional conditions, where demand far outstrips supply will the least efficient producers make average profits, and those situations will usually be quickly ended as supply increases.

Marx then makes a further point that does not seem to be correct. He says,

“Assuming prices of production to remain unchanged, the additional investments of capital in the better soils, that is, in all soils from B upward may be made with unaltered, increasing, or decreasing productivity. For soil A this would only be possible under the conditions assumed by us, if productivity remains the same — whereby the land continues to yield no rent — and also if productivity increases; a portion of the capital invested in A would then yield rent, while the remainder would not.” (p 691)

However, this does not seem logically possible. If we take an hectare of land A, and apply an additional capital to it, with increasing marginal productivity then, by definition, this total capital produces proportionally more than previously, and the hectare of land produces proportionately more. If before it produced 1 Kilo, it may now produce 2.5 Kilos, on the basis of a doubling of the capital. But, this means that the price of production must then fall.

I take it, therefore, that what Marx is trying to say here, but his formulation does not make it clear, is that additional investment of capital may be made in some farms of land type A, and not others. In that case, those that do not receive additional investment continue to determine the price of production, whilst those that do receive additional investment become like a new land type A', which now produces rent.

Otherwise, Marx’s comment that “... a portion of the capital invested in A would then yield rent, while the remainder would not” makes no sense, because it would be impossible to separate the first £2.50 of capital invested in an hectare of land type A from the second.

If additional investment is made in all or some land type A, with falling marginal productivity, then the price of production must rise.

“Yet in all these cases, i.e., whether the surplus-product yielded by the additional investments is proportional to the latter or is greater or smaller than this proportion — whether, therefore, the rate of surplus-profit on the capital remains constant, rises or falls, when this capital increases, the surplus-product and the corresponding surplus-profit per acre increases, and hence also the potential rent in grain and money. The growth in the mere quantity of surplus-profit or rent, calculated per acre, that is, an increasing quantity calculated on the basis of some constant unit — in the present case on a definite quantity of land such as an acre or a hectare — expresses itself as an increasing ratio. Hence the magnitude of the rent, calculated per acre, increases under such circumstances simply in consequence of the increase in the capital invested in the land.” (p 691)

This is, of course, so long as the additional capital is invested in land other than A, and so long as the additional output is greater than would be produced on land A. it is so because, even if the surplus profit is rising, by a diminishing amount, it is still rising. It is so also only so long as this additional investment does not raise supply to such a level whereby the production of land A is not required, and where, therefore, the price of production is reduced.

Where there is an increasing or decreasing marginal productivity of capital, it affects the extent of the increase, in rent per hectare, but not the fact that it will increase. This distinguishes Differential Rent II from I. If additional capital is invested in additional pieces of land, rather than in the same land, then the total rent rises, because more rentable land is cultivated. If the land brought into cultivation is not land type A, the average rent will also increase. However, for any particular type of land the rent per hectare will not increase.

“Given the same result so far as quantity and value of total production and surplus-product are concerned, the concentration of capital upon a smaller area of land increases the amount of rent per acre, whereas under the same conditions, its dispersion over a larger area, all other conditions being equal, does not produce this effect. But the more the capitalist mode of production develops, the more does the concentration of capital upon the same area of land develop, and, therefore, the more does the rent, calculated per acre, increase.” (p 691-2)

If there are two countries, or even different regions of the same country, therefore, where the price of production is the same, the types of soil are identical, and the same amount of capital is invested, rents, and, therefore, land prices will be higher where this capital is used intensively, on a smaller area of land, than where it is used extensively, on a larger area of land. The total rent, however, will be the same, because there will be higher rents per hectare in one area, with a smaller number of hectares rented, whereas in the other, rent per hectare will be be lower, but rent will be levied on more hectares.

“The difference in magnitude of rent could thus not be explained here to be a result of a difference in the natural fertility of the various soils, nor a result of a difference in the quantity of employed labour, but solely a result of different ways in which the capital is invested.” (p 692)

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