Friday, 26 August 2016

Capital III, Chapter 45 - Part 11

Marx's problem arises because he has followed Ricardo's theory of rent, and only amended it. The extent of that problem is then indicated by the fact that although Marx begins by rejecting the catastrophist conclusions of Ricardo and Malthus, his own theory of rent leads him into a similar position. So, for example, like them, he is basically led into a conclusion of ultimately diminishing returns.

“It is possible for the increase of social productivity in agriculture to barely compensate, or not even compensate, for the decrease in natural power — this compensation will nevertheless be effective only for a short time — so that despite technical development there, no cheapening of the product occurs, but only a still greater increase in price is averted. It is also possible that the absolute mass of products decreases with rising grain prices, while the relative surplus-product increases; namely, in the case of a relative increase in constant capital which consists chiefly of machinery or animals requiring only replacement of wear and tear, and with a corresponding decrease in variable capital which is expended in wages requiring constant replacement in full out of the product.” (p 766-7)

This gives far too much ground to Ricardo and Malthus, and the concept of diminishing returns. What is more, it has been decisively disproved empirically. The rise in social productivity has way exceeded any decline in natural fertility, and productivity. That has been so to such an extent that the percentage of the population employed on the land, has fallen from around 80% in Marx's time, to around 2%, today, in Britain. At the same time, agricultural production has expanded massively, whilst the prices of agricultural products have been slashed. So much so, in fact, that today a litre or milk is cheaper than a litre of water!

The extent of this is indicated by Marx's comments in relation to the determination of prices in relation to cattle raising. Marx, following Adam Smith, for example, takes it that arable farming, and the production of grain is the determining factor in respect of rent, because of this being the most profitable activity. The use of land for other activities, such as cattle raising, then becomes limited to the worst soil, and only when the prices of these commodities rises to such a level as to make it possible to use these worst soils for this purpose, rather than grain production.

“Adam Smith — and this is one of his merits — has already demonstrated that a quite different determination of prices is to be observed in cattle-raising, and, for that matter, generally for capitals invested in land which are not engaged in raising the principal means of subsistence, e.g., grain. Namely in that case the price is determined in such a way that the price of the product of the land — which is used for cattle-raising, say as an artificial pasture, but which could just as easily have been transformed into cornfields of a certain quality — must rise high enough to produce the same rent as on arable land of the same quality. In other words, the rent of cornfields becomes a determining element in the price of cattle, and for this reason Ramsay has justly remarked that the price of cattle is in this manner artificially raised by the rent, by the economic expression of landed property, in short, through landed property. [G. Ramsay, An Essay on the Distribution of Wealth, Edinburgh, 1836, pp. 278-79. — Ed.] 

In fact, grain prices have fallen to such an extent that in every society, whenever living standards rise, this is marked by a relative, and often absolute fall in the consumption of grains and rise in the consumption of meat. In part, this is a function of the opening up of vast prairies, for grain production, but, in larger part, it is a function of the growing marginal productivity of capital employed on the land. Even in the US, the increased output at lower cost, is largely due to the ability to use capital-intensive methods – use of aeroplanes for crop dusting, the application of science for chemically improving the soil, and prevention of disease, use of large scale equipment and GPS tracking etc.

Moreover, this change is illustrated by the radical shift in land prices for alternative uses. Agricultural land sells at around £10,000 per acre, in the UK, whereas development land sells at around £930,000 per acre in England, and £2.6 million per acre in London, which reflects the much higher profits obtainable from using land for development rather than agriculture. In fact, agricultural land prices would undoubtedly fall much lower, if the restrictions such as the Green Belt, which introduces a further land owners monopoly, did not exist.

Marx's further example of a Norwegian forest demonstrates the point even more clearly. He says,

“But, as a matter of fact, the capital here consists almost exclusively of a variable component expended in labour, and thus sets more surplus-labour in motion than another capital of the same size. The value of the timber, then, contains a greater surplus of unpaid labour, or of surplus-value, than that of a product of a capital of a higher organic composition. For this reason the average profit can be derived from this timber, and a considerable surplus in the form of rent can fall to the share of the owner of the forest. Conversely, it may be assumed that, owing to the ease with which timber-felling may be extended, in other words, its production rapidly increased, the demand must rise very considerably for the price of timber to equal its value, and thereby for the entire surplus of unpaid labour (over and above that portion which falls to the capitalist as average profit) to accrue to the owner in the form of rent.” (p 768)

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