Friday, 19 August 2016

Capital III, Chapter 45 - Part 4

In some cases, where land is leased, the whole area will comprise a variety of soil types, including that of the worst soil. But, the rent will be calculated on the basis of the entire farm. That means that, in reality, rent and differential rent will be paid on the better soils, on the basis described above, whilst no rent will be paid on the worst soil. However, it will be impossible to separate out, because the rent will be paid on the total area.

Moreover, this kind of situation does not take the analysis any further forward, because the point here is to analyse the basis of rent on the worst soil, where it stands independently.

Capital invested in a piece of land may generate rent, but as a result of falling marginal productivity, a further investment of capital may not. This is like the situation described above, where different qualities of land are intermingled, so that some are producing rent and others not, but it can't be distinguished because a single rent is paid for the total.

Similarly, it is impossible to separate out the total output of a piece of land, and say that the output is the product of the first investment of capital and produced rent, and this is the product of the second investment and didn't! Its only possible to take the total output and calculate its average cost. An analysis on the basis of marginal cost may show that, in the first case, the additional poor quality land added nothing to the surplus profit, just as here it would show that the additional capital added nothing to the surplus profit. But, for the same reason, it adds nothing to the analysis, therefore, if now rent is payable on the worst soil, when taken on its own.

If, on the other hand, there was rising marginal productivity of capital, so that he made additional surplus profit, he would pocket it until such time as the rent was reassessed.

Marx says,

“But the simple fact that additional soil of poorer quality must be independently cleared and independently leased in order for him to secure this surplus-profit proves irrefutably that the investment of additional capital in the old soil no longer suffices to produce the required increased supply.” (p 752)

However, for the reasons set out previously, I do not agree with this statement. Marx goes on to say, in relation to other industries in general,

“The additional new establishments, on the other hand, must yield the average profit and are organised in the hope of obtaining this average profit.” (p 753)

But, again, this is clearly not true. The aim of any new business may be not to just make this average profit, but to make excessive profits. However, hopes and ambitions are not the same as objective possibilities. If it was the case that all new businesses must yield the average profit, many would never be started, because its common for new businesses to run for several, even many years at a loss, in order to become established, before making any, let alone average profits. Moreover, Marx's analysis has already demonstrated that, in every industry, there are firms that operate above, at and below the average profit, because of different degrees of efficiency. So, what exempts new businesses from this law, and guarantees that they must make average profits?

In reality, new businesses, like any other, will operate at different levels of profitability, and for many smaller capitals, where the alternative is to be merely a wage worker, the potential of any profit over and above their wages, is enough to continue production. It may be possible for someone with a large or medium sized capital to invest it in some other more profitable venture, or even to obtain sufficient income from using it as loanable money-capital, to provide a risk-free return, but the owner of small amounts of capital has no such possibility.

The interest on a small capital offers insufficient income, and cannot so easily be transferred to some other venture, especially where it forms capital for its owner, only to the extent that it allows them to employ their specific labour-power. For example, a joiner may be able to use a small capital to employ themselves in their own joinery business. If plumbing offered a higher rate of profit, it is of little relevance to them, as they are not plumbers. They might use their small capital to obtain interest, but then would have to risk seeing the real value of this capital diminish, whilst they would be dependent on being able to return to being a wage labourer, in order to earn enough to live.

If the profit they could make, over and above their wages, by using this small capital, gave them a greater sense of security, a sense of independence, compared with being a wage labourer, and more than they could have made in interest on their capital, they are likely to employ it in that way, therefore, even if the profit earned is fairly minimal. The same applies to a small peasant farmer, which is why they often attempt to cling on, even way beyond this point.

No comments: