“A. Differential rent.
1) Conception of differential rent. Water-power as an illustration. Transition to agricultural rent proper.
2) Differential rent I, arising from the varying fertility of various plots of land.
3) Differential rent II, arising from successive investments of capital in the same land.
Differential rent II should be analysed:
a) with a stationary,
b) falling,
c) and rising price of production.
And also
d) transformation of surplus-profit into rent.
4) Influence of this rent upon the rate of profit.
B. Absolute rent.
C. The price of land.
D. Final remarks concerning ground-rent.” (p 726-7)
The conclusions, in relation to Differential Rent are that surplus profit may be created in a number of ways; with falling marginal productivity of capital, the limit for the effective investment of capital and better soils is the point at which the average price of production on it rises to the price of production on the next less fertile soil, i.e. for B-A, for C-B, and so on.
Surplus profit may arise on the basis of Differential Rent I, where all available agricultural capital is invested in soils of different fertility. It is the relative fertility that is the basis of the surplus profit, on the more fertile soils. It may arise on the basis of Differential Rent II, where it is the variations arising from successive additional investments of capital, i.e. the marginal productivity of capital, that gives rise to varying levels of output, even on soil of the same fertility.
“But no matter how this surplus-profit may arise, its transformation into rent, i.e., its transfer from farmer to landlord, always presupposes that the various actual individual production prices of the partial outputs of the individual successive investments of capital (i.e., independent of the general price of production by which the market is regulated) have previously been reduced to an individual average price of production. The excess of the general regulating production price of the output per acre over this individual average production price constitutes and is a measure of the rent per acre.” (p 727)
The variations are apparent in respect of Differential Rent I, because they arise on separate pieces of land, existing side by side, at the same time. But, for Differential Rent II, the variations arise over time, and involve varying investments of capital. In order to be distinguishable the variations must essentially be reduced to Differential Rent I. In other words, to distinguish between the average product, and marginal product of capital.
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