For example, the fact that I might have to pay £1,000 a year in absolute rent, for a piece of land, or else to buy it for £20,000, will be an obstacle to me investing capital in this land. Before I will do so, I must know that I will make sufficient profit to cover this £1,000 a year rent, plus the average profit. But, if the land is already in cultivation, and I am paying this rent, that has no bearing on whether I will then invest £1,000, £5,000, or £10,000, in that land, because this will not change the absolute rent. What this investment will determine is the amount of surplus profit deriving from the marginal productivity of capital, i.e. Differential Rent II.
On this basis, although all land will pay rent, some capital will not produce surplus profit, and will not, therefore, give rise to Differential Rent II.
There is though, I think, a problem with Marx's theory, here, that he seems to skirt around. He says,
“If the average composition of agricultural capital were equal to, or higher than, that of the average social capital, then absolute rent — again in the sense just described — would disappear; i.e., rent which differs equally from differential rent as well as that based upon an actual monopoly price. The value of agricultural produce, then, would not lie above its price of production, and the agricultural capital would not set any more labour in motion, and therefore would also not realise any more surplus-labour than the non-agricultural capital. The same would take place, were the composition of agricultural capital to become equal to that of the average social capital with the progress of civilisation.” (p 765)
It is indeed the case that if the organic composition of capital in agriculture or other extractive industries rose to the same or higher level as in the rest of industry, then the value of its output would no longer be above its price of production, and so this difference could no longer be a basis for absolute rent. But, there seems no reason why that being the case, landlords would cease requiring payment of rent on land whose use they lease out. That being the case, that suggests that this basis of rent is flawed. There seems to be a series of other theoretical options for the basis of rent that would comply with Marx's requirements.
Firstly, rent could be viewed in the same way as loanable money-capital, whether it is provided by productive-capitalists, or money lending capitalists. The productive-capitalist makes the average profit, and interest is a deduction from it, going into the pocket of the productive-capitalist themselves, or the money lending capitalist respectively, dependent upon who provided it. There seems no reason why the provision of the use value of land, need be treated differently, and indeed this removes the need for the division into Absolute Rent, and Differential Rent I and II. Instead, all that is required is to view the rent as the price for the particular use value of the land used.
Secondly, Marx has previously discussed the situation of other costs, that do not add value to the commodity, such as the cost of providing storage etc. The situation here is that these costs are recovered in the price of the commodity. The consequence must then be that this cost is born by capital as a whole, as a deduction from total surplus value. Absolute Rent, as a cost that all agricultural producers must pay, could then be viewed in a similar way. Marx used a similar argument, for example, in relation to depreciation in agriculture.
In industry, depreciation is a cost to capital, which is not recovered in the value of commodities. That is in contrast to wear and tear, the value of which is transferred to commodities. However, Marx, in Capital II, sets out that, because in agriculture, equipment has to remain idle for long periods, during which it depreciates, this depreciation is a cost that must be recovered in the price of agricultural commodities, rather than simply born by the individual capital.
Similarly, the costs of merchant capital add nothing to the value of commodities, but have to be recovered by merchant capital in calculating the profit and price of production.
As Marx admits, if the organic composition was to so rise, then the only basis that such an absolute rent could arise, on the basis of his theory, is if the market price was to rise above the price of production, i.e. a monopoly price, and this seems to create another contradiction.
“It seems to be a contradiction, at first glance, to assume that, on the one hand, the composition of agricultural capital rises, in other words, that its constant component increases with respect to its variable, and, on the other hand, that the price of the agricultural product should rise high enough to permit rent to be yielded by new and worse soil than that previously cultivated, a rent which in this case could originate only from an excess of market-price over the value and price of production, in short, a rent derived solely from a monopoly price of the product.” (p 765)
Marx's answer here is that a distinction must be made between a high organic composition due to a high technical composition of capital, i.e. the quantity of constant capital is high relative to the quantity of labour-power, whilst the value of the component parts of the constant capital is low, and a high organic composition which is due to a high value composition, i.e. the value of the components of constant capital is high, but the quantity of constant capital is lower.
For example, a pottery manufacturer might process a lot of clay in relation to the labour employed, but the value of the clay is low. A jewellery manufacturer may process a small quantity of diamonds, but the value of diamonds is high, so the value composition of the latter will be higher than the former, even though the technical composition is lower.
However, within the constant capital, there is also the relation between the fixed and circulating capital to be considered. A mining capital will use no raw material, in its production, and only small amounts of auxiliary materials, but it will use increasing quantities of fixed capital. So, where in industry the rise in social productivity is characterised by an increasing quantity and value of raw material processed, relative to a diminishing amount of fixed capital and labour, in extractive industries and agriculture, this tends not to be the case.
In the latter, the rise in the organic composition of capital reflects a relative increase in fixed capital, whereas, in the former it reflects a relative increase in circulating constant capital.
“The mere circumstance, then, that agricultural capital might be on the general level of value-composition, would not prove that the social productivity of labour is equally high-developed in it. It would merely show that its own product, which again forms a part of its conditions of production, is dearer, or that auxiliary materials, such as fertiliser, which used to be close by, must now be brought from afar, etc.” (p 766)
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