Tuesday, 23 August 2016

Capital III, Chapter 45 - Part 8

In developed capitalist economies, agriculture tends to have a lower organic composition of capital than average, and lower than in industry.

“Such a fact could be explained — aside from all other circumstances, including in part decisive economic ones — by the earlier and more rapid development of the mechanical sciences, and in particular their application compared with the later and in part quite recent development of chemistry, geology and physiology, and again, in particular, their application to agriculture. Incidentally, it is an indubitable and long-known fact that the progress of agriculture itself is constantly expressed by a relative growth of constant capital as compared with variable capital.” (p 760)

On this basis its clear that the value of agricultural products will be higher than their price of production. That means that a rent can be charged on this difference, and this rent will be an absolute rent, as opposed to a differential rent.

“This assumption, then, suffices for that form of rent which we are analysing here, and which can obtain only so long as this assumption holds good. Wherever this assumption no longer holds, the corresponding form of rent likewise no longer holds.” (p 760)

However, the fact that this difference between the value of agricultural products and their price of production exists, and, therefore, that an absolute rent could arise from it, does not mean that it will. In all industry, too, there are spheres with below average organic compositions of capital, but this does not result in these spheres enjoying surplus profits, or a rent arising, on the difference between the value of their production and its price of production.

The reason is that the process of forming an average rate of profit constantly moves capital from areas where the rate of profit is below average (high organic composition of capital) and towards those with a higher than average rate of profit (low organic composition of capital). The supply of commodities in the former falls, pushing prices and profits higher, and rises in the latter, pushing prices and profits lower.

“This supposition rests, however, as previously discussed, upon the constantly changing proportional distribution of the total social capital among the various spheres of production, upon the perpetual inflow and outflow of capitals, upon their transferability from one sphere to another, in short, upon their free movement between the various spheres of production, which represent so many available fields of investment for the independent components of the total social capital. The premise in this case is that no barrier, or just an accidental and temporary barrier, interferes with the competition of capitals — for instance, in a sphere of production, in which the commodity-values are higher than the prices of production, or where the surplus-value produced exceeds the average profit — to reduce the value to the price of production and thereby proportionally distribute the excess surplus-value of this sphere of production among all spheres exploited by capital.” (p 761)

But, by the same token, if capital meets some obstacle, which prevents it from flowing into those areas where the rate of profit is above the average, then its clear that this process cannot operate. If capital cannot enter a sphere enjoying higher than average profits, the supply of commodities produced in this sphere does not rise sufficiently to cause their prices to fall so as to bring about an equalisation of profit rates. In that case, surplus profits will exist in that sphere, and these can be transformed into absolute rent.

“Such an alien force and barrier are presented by landed property, when confronting capital in its endeavour to invest in land; such a force is the landlord vis-à-vis the capitalist.” (p 762)

The landlord will not allow any additional land to be brought into cultivation, unless a rent is paid for its use, even if that land does not produce differential rent. On this basis, the market price of products must rise to a level above the price of production so as to yield this rent.

“However, since the value of the commodities produced by agricultural capital is higher than their price of production, according to our assumption, this rent (save for one case which we shall discuss forthwith) forms the excess of value over the price of production, or a part of it.” (p 762)

The excess of the value over the price of production may be entirely absorbed as rent, or only part of it. Whatever is excess, over the rent, will participate in the process of the general equalisation of the rate of profit. What proportion is taken up in rent will depend upon conditions of supply and demand, and the area of land newly taken into cultivation.

“But whether this absolute rent equals the whole excess of value over the price of production, or just a part of it, the agricultural products will always be sold at a monopoly price, not because their price exceeds their value, but because it equals their value, or because their price is lower than their value but higher than their price of production.” (p 762)

The monopoly resides in precisely the fact that landed property will not allow capital to be invested in the land, and production to take place, unless it obtains this absolute rent.

Back To Part 7

Forward To Part 9

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