Saturday, 27 August 2016

Capital III, Chapter 45 - Part 12

It was no doubt true, in Marx's day, that the majority of capital required would have been variable capital, required for the felling of trees and their transportation. It is not today. I live on the edge of a forest, and the job of felling is undertaken by less than a handful of workers, using heavy machinery, which cuts the trees, strips the branches, and cuts the trunks into regular lengths, prior to stacking them. The stacks are then collected by a single worker, with a lorry that grabs the trunks and loads them on the lorry. Yet, I have no doubt that, despite the fact, that the value of this timber is thereby below its price of production, the landowner still requires a rent for the use of the forest.

If newly cultivated land is of a superior quality to existing land, it produces surplus profit and differential rent. If it is inferior, it will produce absolute rent. But, what if it is the same quality, but does not produce differential rent?

If there has been no technical innovation that reduces values, and thereby makes it possible to bring into cultivation additional land, the bringing into cultivation of this additional land may be due to a rise in market prices. That may result in more fertile soil being cultivated that previously was excluded because of its distance from markets. Alternatively, the advantage of location of inferior soil may outweigh the disadvantage of its poorer quality.

Even if market prices do not rise, more remote, but more fertile soils may be brought into cultivation, if transport is improved, so that large quantities can be shipped more quickly and at much lower cost. That was seen in Capital II, where the introduction of new railway lines to large cities, led to the decline of former areas of supply and the development of new areas in their place.

“To sum up, then, the contradictory influences of location and fertility, and the variableness of the location factor, which is continually counterbalanced and perpetually passes through progressive changes tending towards equalisation, alternately carry equally good, better or worse land areas into new competition with the older ones under cultivation.” (p 769)

Land may also be brought into cultivation, because it was previously considered inferior, as a consequence of its chemical composition, or physical characteristics. But, as science and technology develops, the means of overcoming these problems is established and often relatively cheaply, so that what is then fertile soil can be utilised.

“In this way, light soil types in France and in the eastern counties of England, which were regarded as inferior at one time, have recently risen to first place.” (p 769)

Where land has been held communally, large tracts remained uncultivated for a variety of reasons. The nature of peasant farming often created no great demand for the bringing into cultivation of such areas. As a result, they are often brought into cultivation not on the basis of which land was most fertile, but on the basis of when the landed aristocracy was able to steal these lands away from their communal owners.

Factors such as the growth of population, affecting demand, and of the progress in the development of capital, which both stimulates demand and makes possible investment, influence the extension of cultivation. But, in addition, it is influenced by general business conditions, and the size of the capital market.

In other words, if credit is tight, and interest rates are high, it will be necessary for above average profits to be made to entice new investment. Where interest rates are low and credit is readily available, the opposite will apply.

“Better soil than hitherto cultivated would in fact be excluded from competition solely on the basis of unfavourable location, or if hitherto insurmountable obstacles to its employment existed, or through chance.” (p 770)

For one thing, there is also the cost of clearing land, before it can be brought into cultivation, and this must be justified by the returns.

“As soon as this soil then actually enters into competition, the market-price will fall once more to its former level, assuming other conditions to be equal, and the new soil will then yield the same rent as the corresponding old soil.” (p 771)

It is not necessary that the market prices rise, for this additional land to be brought into cultivation or that absent such a rise in price that this new land be rent free. What is required is that there be adequate demand at the current price to absorb the additional supply. Marx gives the example of houses.

A builder may lease a piece of land on which he builds houses to rent. Whether all these houses pay rent to the builder will depend upon whether there is sufficient demand from tenants. But, even if some or all of the houses remain vacant, the land will still pay rent, i.e. the builder will have to pay rent to the landowner.

“Just as successive investments of capital in a certain piece of land may bring a proportional surplus and thereby the same rent as the first investment, so fields of the same quality as those last cultivated may bring the same proceeds for the same cost. Otherwise it would be altogether inexplicable how fields of the same quality are ever brought successively under cultivation; it seems that either it would be necessary to take all together, or rather not a single one of them, in order not to bring all the remaining ones into competition. The landlord is always ready to draw a rent, i.e., to receive something for nothing. But capital requires certain conditions to fulfil his wish. Competition between pieces of land does not, therefore, depend upon the landlord desiring them to compete, but upon the capital existing which seeks to compete with other capitals in the new fields.” (p 771)

In other words, this expansion is explicable in terms of the same process that causes a general accumulation of capital. The amount of absolute rent must be small Marx says, because of the limit to which the value of agricultural products exceeds their price of production, and this difference is reduced with the development of agriculture. The effect of absolute rent is more marked in extractive industries, Marx claims, because, apart from fixed capital, all the capital used is variable capital, so that the value of its output exceeds the price of production by a wide margin.

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