Friday Night Disco - Pass The Peas - The JB's

Capital III, Chapter 48 - Part 3

Turning to the second element of this Trinity – land – it has no value, because it is not the product of labour. So, it can neither add value, as it has none, still less can it produce, therefore, a surplus value.

“Value is labour. Therefore surplus-value cannot be earth.” (p 815)

As previous chapters demonstrated, the absolute fertility of the soil enables labour employed on it to produce use values. The relative fertility of one piece of land compared to another enables the same quantity of labour and capital to produce more use values on one compared to another.

“... that is, causes these products to have different individual values.” (p 815)

It is only because these individual values are subsumed in a single market value that results in the capital employed on the more fertile land, producing surplus profit. It is the fact of the existence of landed property, which then ensures that this surplus profit lands in the pocket of the landowner, rather than that of the producer or consumer.

The third element is labour. But labour here is an abstraction, which ignores the various historical forms under which it is undertaken. Labour, again, is not a thing, but an activity, or process.

“And finally, as third party in this union, a mere ghost — "the" Labour, which is no more than an abstraction and taken by itself does not exist at all, or, if we take... [illegible] [As has been established by later reading of the manuscript, it reads here: "wenn wir das Gemeinte nehmen" (if we take that which is behind it). — Ed.], the productive activity of human beings in general, by which they promote the interchange with Nature, divested not only of every social form and well-defined character, but even in its bare natural existence, independent of society, removed from all societies, and as an expression and confirmation of life which the still non-social man in general has in common with the one who is in any way social.” (p 815)

So, of these three things, which according to bourgeois economics are all analogous factors, each contributing value to the production of society's wealth, and each extracting a proportionate quantity of wealth out of society, the first is not a thing at all, but an historically determined social relation; the second is a thing, but has no value; and the third is an abstraction, which fails to identify the specific nature of wage labour, as opposed to any previous form of human productive activity.

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Don't Bail-out Deutsche Bank

Three years ago, I set out the extent to which the global banking system, and particularly the European banking system, is still bust. After 2008, we were told that a whole series of measures had been put in place to make the banks safe, and to prevent a repetition of the global financial crisis. It was hogwash. What happened in the aftermath of 2008, was that the share and bondholders of the banks were bailed out, and in many places, such as Ireland, Greece, Cyprus, Spain, and Portugal, that bail-out was implemented at the expense of the rest of the economy, which was cratered under crazy policies of austerity. In Europe, one stress test after another has come and gone, assuring us that the banks were now safe, only each time, for several of those supposedly safe banks to go bust! Back in 2013, I noted the reports that Germany's Deutsche Bank had exposure to around €55 trillion of derivatives, an amount equal to the entire global GDP. Now, it looks like Deutsche Bank might go bust, and the German government is discussing whether it should be bailed-out. It shouldn't.

In 2011, Deutsche Bank shares stood at over €45. Today they are hovering at just over €10, a fall of more than 75%. At the start of the year they stood at just over €20, meaning they have fallen by 50% just this year. Now, Deutsche Bank also faces a $14 billion fine from the US regulators over its activities in the US housing market leading up to the sub-prime crisis, and the financial meltdown of 2008. That fine if implemented in full is more or less equal to the current market capitalisation of the bank. Any fine over $5 billion is almost certain to require Deutsche Bank to have to issue new shares so as to raise capital, in order to keep trading. In the current conditions of the European banking system, its not likely to find willing buyers of such new shares, other than at very low issue prices.

But, if Deutsche Bank folds, that €55 trillion of exposure to financial derivatives, referred to above, would then send shock waves through the global financial system that would make the collapse of Lehman Brothers, in 2008, look like a little local difficulty. This is part of the final act of the tragedy caused by the Monetarist experiment launched by Thatcher and Reagan in the late 1980's. In 2008, we had merely the rehearsal for this finale, as I set out in my book.

At the moment, Merkel is saying that she will not bail-out Deutsche Bank. She can hardly say any other. For one thing, like bankers who traditionally stand on the steps of their institutions to assure everyone that the bank is safe, just before it collapses, she cannot give credence to the idea that Germany's largest private financial institution is on the ropes. For another thing, having told the Greeks that they had to endure all of the unnecessary agony of austerity, for the last six years, and having imposed similarly irrational policies on other EU economies, Merkel can now hardly reverse course to bail-out a German bank. But she will, in the end, try to do so.

She will do so for the same reason that after 2008, the US government and the UK government nationalised their banks, for the same reason that the Irish government took over Allied Irish Bank, and that oceans of additional liquidity has been pumped into the banking system, over the last eight years. She will do so, because the form of wealth of private capitalists today is that of fictitious capital, of shares, bonds, and property, and a collapse of Deutsche Bank will spell the collapse of all of the grossly inflated prices of that fictitious capital which has been blown up over the last thirty years, and which over the last thirty years, at least, has been kept inflated at the expense of the real economy.

These markets – shares, bonds, property – are nothing more than casinos. The capitalists who gamble on them rob each other. But, over the last thirty years, monetary policy has guaranteed that virtually no one gambling in these casinos could lose. If share prices fell sharply, as they did in 1987, 2000, and 2008, the central bank stepped in to print money and push those prices back up again; if property prices fell sharply as they did in 1990, and 2008, and 2010, central banks stepped in to again print money, to provide specific finance to mortgage lenders, to avoid repossessions, and governments intervened directly to stimulate demand via policies such as Help To Buy, aiming to keep house prices high.

The only people who thereby lost out in such speculation were those who did not participate in the speculation itself. Those who did not own any of these assets, but who only owned money, or worse still who had large debts, saw their position continually deteriorate. As share, bond and property prices rose inexorably, any given amount of money bought less and less of them, which is why pension funds developed ever larger deficits, and why more and more people found that they could not buy their first home, or move up to a bigger or better home. As with every such bubble, it thereby gave an incentive for everyone to want to get into the casino, as soon as possible so as not to lose out further.

A look at the UK property market illustrates that point. There is actually 50% more homes per head of population today than there was in the 1970's, when house prices were much lower, adjusted for inflation. The difference is that the number of single occupier homes has increased massively.

In 1971, 79% of UK households were multi-occupancy, 70% were occupied by married couples. Only 19% were occupied by single people, with a further 2% occupied by lone parents. By 2011, those figures had changed drastically. Only 59% were multi-occupancy, the number of married couples had dropped to just 40% with a further 12% cohabiting, and another 7% other multi-occupants. By contrast, the number of homes occupied by one person had almost doubled to 33%, with 8% occupied by lone parents. Source: Halifax.

As Moneyweek point out,

“The population has gone up, of course. But the housing stock has risen too. In fact, according to an interesting report from economic research group Fathom Financial Consulting, while the rate of building decreased over the last decade, the quantity of ‘housing per person’ has risen by nearly 50% since 1970, and is still increasing.!"

The difference is that, in the same way that more households have become multi-car households, and in the same way that an increased number of households means an increased number of car owners, so an increased number of single person households requires a much larger number of homes than does the same number of people living in multi-occupancy homes. An increased availability of credit was a means of encouraging an increase in the number of smaller households, each of which then becomes a cost-centre, useful for facilitating the realisation of produced surplus-value. This has been a piece of deliberate government policy to bolster house prices, so as to keep the financial bubble inflated, both to protect the banks who are insolvent, other than for these fictitious house prices, and to encourage people to borrow money against these inflated property prices as an alternative to decent wages to cover their consumption needs. 

This also explains why this huge increase in money printing has not yet led to a hyperinflation of commodity prices. Everyone who saw they were losing out by not being inside the casino, diverted their resources from the real economy, in order to engage in speculation in the share, bond and property markets. Its like gamblers in the casino, having lost money to some other gamblers, who then simply replenish their funds from outside the casino. In previous centuries that was typical of the old landed aristocracy, who ran up increasing debts, and financed it by selling off their estates. Today, the money-capitalists when they lose money, in the stock market casino, simply replenish their funds for further speculation, by demanding their representatives on company boards, increase the payment of dividends to them, which thereby diminishes the funds available for capital accumulation.

According to Andy Haldane, at the Bank of England, in the 1970's, the proportion of profits that went to dividends was around 10%, whereas today it is around 70%. That is why capital accumulation and growth of the real economy has been held back, which ultimately undermines the system as a whole, because without an increased mass of capital, the potential to increase the mass of profits is increasingly restricted, which means the potential to pay out all forms of revenues from it, such as interest, rents, taxes is undermined.

Not only do these inflated asset prices, thereby contribute nothing to economic growth, but they actually have the opposite effect. By stimulating speculation, they drain potential money-capital from the real economy into further speculation; they have massively increased the cost of pension provision, because pension contributions buy fewer and fewer of those assets, to cover future liabilities; they have massively increased the cost of shelter for workers, which, like the increase in the cost of pension provision, means that the value of labour-power is raised; and as the value of labour-power is raised, so the rate of surplus value, and consequently the rate of profit is reduced.

Workers should oppose any bail-out of Deutsche Bank, or any of the other financial institutions around the globe that will collapse along with it. The ending of the global financial bubble, a collapse in stock, bond and property markets will be a good thing for workers, and also for real industrial capital itself, as opposed to the fictitious capital whose interests have been protected at its expense over the last thirty years.

If banks and financial institutions collapse, all that is required, is that central banks ensure that there is sufficient liquidity within the system to enable commodities to continue to be exchanged. In modern economies with advanced systems of electronic money and payments, that simply requires that those payment systems are maintained and functional. The financial speculators who will have lost their shirts should finally be made to bear the consequences of their actions. The banks themselves having become worthless, should be taken over by their workers, and merged into a single co-operative financial institution, operating across Europe, and capable of providing credit to the real economy, particularly other co-operative ventures. 

As share and bond prices collapse, and yields therefore, rise, it will become easier for pension liabilities to be funded, for pension contributions to buy up the now much cheaper shares and bonds. We need proper workers ownership and control over pension funds, so that our resources can be used to exercise control over other sections of capital. As land and property prices collapse, it will again become possible for workers to buy their first homes, and for rents to become affordable without massive subsidies to landlords, and it will mean that the cost of building new homes will fall significantly, as land prices fall.

No more bail-outs for the banks and finance houses, and for the financial speculators who have inflated these unsustainable bubbles at the expense of the real economy.

Capital III, Chapter 48 - Part 2

But, a cost of production, or historic cost, theory of value starts from the other end. It takes the historic prices paid for the constant capital, and the wages, alongside the profits, and adds them together to obtain the value of the commodity, or the commodity-capital. On this basis, the Smithian notion, adopted by bourgeois economics, of factor incomes, derived from the contribution each makes to the value of the product, flows naturally.

Given that, for Smith, as Marx sets out in Capital II, Chapter 20, the entire value of the commodity, and of the society's commodity product, dissolves entirely into these factor incomes, and thereby into just v + s, rather than c + v + s, this notion is reinforced. Modern bourgeois economics, of whatever flavour, from the Austrian School through to the Neo-Keynesian, accepts this absurd notion that the value of national output can be entirely dissolved into the factor incomes of wages, rent, profit and interest (plus taxes), which comprise National Income, and so only the value of the consumption fund, completely omitting the value of the fund required to reproduce the means of production!

This is important for Marx, because it is upon these phenomenal forms, on these different forms of revenue that he wants to examine the consequence for the division of society into classes, whose economic interests thereby diverge, and come into contradiction with each other.

i)

“Capital — profit (profit of enterprise plus interest), land — ground-rent, labour — wages, this is the trinity formula which comprises all the secrets of the social production process. 

Furthermore, since as previously [Present edition: Ch. XXIII. —Ed.] demonstrated interest appears as the specific characteristic product of capital and profit of enterprise on the contrary appears as wages independent of capital, the above trinity formula reduces itself more specifically to the following:

Capital — interest, land — ground-rent, labour — wages, where profit, the specific characteristic form of surplus-value belonging to the capitalist mode of production, is fortunately eliminated.” (p 814)

Yet, all these supposed sources of wealth are different, and not analogous to each other. As described previously, neither land nor loanable money-capital possess value, and thereby are not additive of value to the production process. They obtain a revenue, a portion of the total value produced by society, without contributing anything to it. They share in the surplus produced by productive-capital, but the productive-capital itself divides into constant capital, whose value is only transferred to the value of the commodity, and variable capital, which alone creates new value, and the potential for surplus value arising from it.

“Capital, land, labour! However, capital is not a thing, but rather a definite social production relation, belonging to a definite historical formation of society, which is manifested in a thing and lends this thing a specific social character. Capital is not the sum of the material and produced means of production. Capital is rather the means of production transformed into capital, which in themselves are no more capital than gold or silver in itself is money. It is the means of production monopolised by a certain section of society, confronting living labour-power as products and working conditions rendered independent of this very labour-power, which are personified through this antithesis in capital. It is not merely the products of labourers turned into independent powers, products as rulers and buyers of their producers, but rather also the social forces and the future [? illegible] [A later collation with the manuscript showed that the text reads as follows: "die Gesellschaftlichen Kräfte und Zusammenhängende Form dieser Arbeit" (the social forces of their labour and socialised form of this labour). — Ed.] form of this labour, which confront the labourers as properties of their products.” (p 814-5)

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Labour's Appearance and Reality - Part 2 of 2

In Part 1, I argued that Corbyn and his supporters have won a commanding victory in the Labour Party against the right. A weakened and defeated right have resorted to a duplicitous longer-term strategy to undermine Corbyn. But, nor should we be too self-satisfied about the apparent commanding position that Corbyn and his supporters now have within the party. In the 1980's, after long battles, and many weeks, days and hours of hard work within communities, the rank and file of the party had advanced considerably too, but it did not stop the right using all of the resources at their disposal to overturn that position by a series of undemocratic manoeuvres.

The outline of such a strategy by the right has been described by Paul Mason. Those of us who were around in the 1970's and 80's, have seen it all before. By far the greatest abuse and intimidation comes from the right of the party against the ordinary members, not from the left against an entrenched establishment. But, the right along with the party apparatus is able to utilise its position and its support within the Tory media to create a narrative that presents an entirely different picture.

We have seen that in practice in the manoeuvres of the old right-dominated NEC, which tried to limit support for Corbyn from members, disenfranchised 130,000 members from voting in the leadership election, closed down the party in the country for the last few months to frustrate organisation by the rank and file, and to give credence to the meme about intimidation, and which also changed the criteria for delegates to annual conference to gerrymander a support for the old right.  We saw the significance of that on Tuesday at conference, when that enabled the Conference Arrangements Committee to force through the proposal to add two additional, unelected members of the NEC, which reinforce the old right's vote on the new NEC, where they would have been in a minority.

In just the same way that today the Tory media continues to repeat the lie that the 2008 financial crisis was caused by the spending of the Blair Labour government on hospitals, schools and other vital infrastructure that had been left to rot by 18 years of Tory misrule, so today they continue the daily lie that Corbyn and his supporters are part of some Jewish-Communist conspiracy to take over the Labour Party and the levers of power. They brand the hundreds of thousands of ordinary party members as a “rabble”, “mob”, “Trots” and other forms of abuse hurled at them, alongside completely unsubstantiated claims about violence and intimidation. They then demand that Corbyn stop such acts, just as the Tories and Tory media insist that Labour should have acted to prevent the 2008 global financial crisis that was actually caused by immensely rich speculators.

One strand of the right's strategy will, therefore, be to intensify this campaign of lies and unfounded accusations of abuse and intimidation. They will use it, and their current control over the party apparatus to close down branches and CLP's, and to suspend and expel ordinary party members they see as supportive of Corbyn. In the meantime all of the former Tories like Sean Woodward will be welcomed with open arms. Day in day out, the right and the Tory media will bang on about this alleged abuse and intimidation, and Corbyn's failure to deal with it. They will seek to turn some of the union leaders, as a potential General Election looms nearer. And, as the right continue to snipe, and cause division they will hope, as it has done over recent months, that it will cause Labour's standing in the polls to remain low, putting further pressure on those union leaders to come to their aid.

There are a number of measures that Corbyn and his supporters in Momentum now need to pursue. Firstly, the Shadow Cabinet should be elected annually by all members, and the results announced at party conference along with the NEC election results. The old right had an opportunity to offer an olive branch in that regard, by agreeing the simple democratic principle that the representation on the NEC from Scotland and Wales, should be elected by the members in Scotland and Wales.  They blew that opportunity, by forcing through bureaucratically, and completely against the party's own rule book, the appointment of those delegates by the Scottish and Welsh party leaders, purely for short term factional advantage.  Had they not done so, there would have been grounds for some negotiation over how the Shadow Cabinet might be elected by some form of electoral college.  But, the old right have shown bad faith for short term advantage once again.  Now, there is no reason not to press ahead with the Shadow Cabinet being elected entirely by the party as whole.

Secondly, the rules for electing the leader and party leader should also be changed. They too should face annual elections, but the privileged position of the PLP in nominating candidates for the position should be ended. Thirdly, the new proposal for the Scottish and Welsh Labour Parties to have NEC representatives should be on the basis of those representatives being elected by the members of the Scottish and Welsh parties.  The bureaucratic manoeuvre pushed through by the old right on Tuesday must be overturned.  Firstly, the members in Scotland and Wales should demand, through their own organisations and conferences, the right to nominate and elect the leaders of the parties in those countries.  They should make clear that they are watching how Dugdale and Jones act on the NEC, and that their positions are at the discretion of party members in those countries.  The Scottish and Welsh parties should pass resolutions that make the decision of who sits on the NEC to represent them, the prerogative of party members in those countries, and not the patronage of the party leaders.

Thirdly, we should have a separate rules conference either later this year, or early next year, that has time to properly discuss the democratic organisation of the party in its new transformed condition. Such a Rules Conference, should reflect the party membership as it now exists, so that the delegates to that conference, reflect all of the 600,000 new members, and not just the old 200,000 members that the present conference reflects.  For one thing, its clear that the 6 NEC seats for CLP's is now wholly inadequate.  It reflected a party membership of 200,000, whereas it is now 600,000.  There should be at least 15 seats for CLP's on the NEC to reflect that transformation.  In fact, given that the NEC itself has been expanded to include the additional Scottish and Welsh delegates, there is a case for arguing that there should be one CLP representative on the NEC for every 30,000 members, which would give CLP's 20 seats.

But, we also need far wider changes that Momentum is in a good position to advance. The process of democratisation of the LP needs to be reflected in a democratisation of the trades unions too. For now, the union leadership of UNITE, and other large unions favours Corbyn, but it has often been the case that the trades unions have been the bastion of support for the Labour establishment against the members. We need Labour Party workplace branches, as used to exist in the early days of the Labour Party, and as started to be built again in the 1980's. Labour Party branches can reach across sectional divisions within workplaces, to all workers, and also translate the solution of industrial and economic issues into political policies and ideas. Similarly, in the early days of the Labour Party, we had Trades and Labour Councils. We should return to such forms of organisation, bringing together District Labour Parties with the local Trades Union Councils. In fact, preferably such organisation should also involve the local Co-operative Party and other co-operative organisations.

That would chime with the proposals that John McDonnell set out in his conference speech on Monday, and that Jeremy will set out in his speech today. But, this local organisation should extend on a much wider scale. In the 1980's, I was an enthusiastic proponent of community organising by the Labour Party, of encouraging local communities to establish tenants and residents committees to pursue their particular local concerns, as well as when I was a County Councillor establishing a local Regeneration Forum, with the purpose of bringing together such committees, to look at what was required in providing the necessary infrastructure to the wider area. We should actively pursue such a course that encourages the widest public involvement in reclaiming ownership and control of our lived environment, rather than simply relying on elected councillors, and local authority bureaucracies to deal with those situations. Real democracy involves more than simply voting every few years.

But, its also clear that as the party has changed, and will continue to change if such wider democratic involvement proceeds, then the elected representatives of the party will also have to change to reflect it. I can understand why Jeremy and his supporters do not want to talk about deselection of MP's, but the fact is that just as an exercise in democracy, the party's representatives should represent the nature of the party, and currently they do not, most noticeably in the case of the PLP, but also in respect of many of the councillors, and senior councillors, who secured their positions some years ago, under a different regime.

The process of reselection will proceed as a result of boundary changes, but the fact is that MP's should be in no more privileged position than any other servant of the party. Branch and CLP officers are elected each year, and incumbents have to be re-elected, councillors have to face mandatory reselection for each new council election. It is simple democracy that MP's should have to face mandatory reselection every time a parliamentary election is held.  Being an MP at the moment seems to be the only job, which gives its incumbent a guaranteed job for life.  That is not even bourgeois democracy, it is a return to the kind of feudal regime of past centuries, whose vestiges remain in the hereditary position of the Monarchy, and Aristocracy.  That has nothing in common with the kind of forward looking, 21st. century principles of democracy and collective aspiration that the Labour Party should represent.

At the moment, the PLP represent merely appearance, but it is an appearance that is starkly at odds with the reality of the current Labour Party. In the spirit of honest talking politics, Corbyn and his supporters should be as open in stating the obvious, and stating their belief,s as have been their opponents, including those comments, over the last few days, by people like Tom Watson, and Saddiq Khan.  The opponents of Corbyn have been open that they want to get rid of him as soon as possible, and by any means they can. Alan Johnson has said they should work day and night from now on to achieve that end. That at least is an honest statement of their position. They have had no reluctance to try to deselect Jeremy, to isolate him within his Shadow Cabinet, to bureaucratically stitch up the new NEC and so on. Its time that Jeremy and his supporters were just as clear in their own statements. Large numbers of the PLP, starting with the 172 that voted against him, are no longer in tune with the Labour Party. The CLP's of many of that 172 nominated Jeremy, the majority of members, in each of those constituencies, voted for him. It is time, as Len McCluskey said the other day, for the MP's that are now out of step with Jeremy, and the members of the party, even in their own CLP's, to go.

Capital III, Chapter 48 - Part 1

Part VII. Revenues and their Sources

The Trinity Formula

This chapter was put together by Engels from three fragments contained in different parts of the manuscript for Part 6 of Volume III.

Having examined "capital in general", in the earlier chapters of Volume III, and then analysed how capital in general divides into commercial capital, interest-bearing capital and productive-capital, as well as the way landed property appropriates a portion of the surplus value, as rent, Marx now examines how this division of the produced surplus value appears in its phenomenal form. That is how it appears as revenue accruing to capital (interest), land (rent) and entrepreneurship (profit of enterprise), alongside the revenue that flows to labour as wages.

In previous chapters, Marx set out the way that money-capital comes to be seen as the only real form of capital. Interest appears to accrue to capital as some inherent property belonging to it. Just as apples grow on apple trees, so interest is produced by capital.

This then leads to the idea (capitalisation) that other revenues are the natural property of other factors of production, and that the value of these factors can be determined on the basis of capitalising their revenue, based on the rate of interest. So, the price of land is nothing other than capitalised rent.

Industrial profit (profit of enterprise), on this view, is only a return to entrepreneurship, as nothing more than a special form of wages, a view that is reinforced, as these entrepreneurs, the functioning capitalists, are increasingly not the owners of the company, but only professional managers, using the money-capital of others, provided as share capital, or loaned in exchange for bonds, or provided by banks.

The basis of this view is also to be found in those aspects of Adam Smith's writings, where he puts forward a cost of production theory of value, as opposed to those parts where he advocates a labour theory of value. Marx describes the difference between the two in Capital II. A labour theory of value determines the value of a commodity – and hence also of society's total commodity-capital, its total output value – on the basis of the labour-time required for its reproduction. Having determined this value, it can be divided into separate funds that are set aside to ensure that reproduction can take place. Those funds are the society's consumption fund, comprising the consumer goods required to reproduce the labour-power, equal to the variable capital, and the fund required to reproduce the means of production consumed, equal to the constant capital. Anything left over after that constitutes a surplus product, and a surplus value. It is used to provide the consumption goods required by the capitalists, and other non-producers. In addition, it provides the fund for accumulation of additional means of production and consumption, so that capital can be reproduced on an extended scale.

So, the value of a commodity may be equal to 100 hours of labour-time. This value is made up of the fact that, in order to reproduce it now requires 60 hours of labour-time to be expended reproducing the materials used in its production, and the wear and tear of the fixed capital used in its production, along with all the other auxiliary materials, i.e. the constant capital. In addition, it may require a further 40 hours of labour to process these materials and create the final product, making 100 hours in total.

If the labour-power requires only 20 hours of labour-time to produce the consumption goods required to produce it, then out of the 40 hours of new value created by this labour, 20 hours will go to reproduce it, and the other 20 will constitute a surplus value. Thereby,

c 60 + v 20 + s 20 = 100 hours.

But, a cost of production theory of value stands this formula on its head. Rather than looking at the value of production, based on the current labour-time used in production, it instead looks at the past labour-time used in production, and its money equivalent, i.e. the historic price paid, and adds them together to give the price of the commodity. So, if the prices paid were as above:-

c 60 + v 20 + s 20, it would derive the value as 100 accordingly.

Yet, as Marx sets out in Capital II, this is logically flawed. If I have a piece of string that is 1 metre long, I can divide it into three pieces of 60, 20 and 20 cm. But, the length of the piece of string is not determined by the combined length of these three pieces! Rather, it is the length of the string itself, which sets the limit of how it can be divided into these three sections. No matter how I cut it, the combined length of the individual pieces can never be longer or shorter than the original piece.

So with the value of a commodity. It is not the price of the constant capital used in the production of the commodity plus the wages and the profits which determine the value of the commodity. Rather it is the current labour-time required for its reproduction which determines its value, and which determines how it can be divided into these three components.

Suppose there is a fall in productivity that means more labour-time is required to reproduce the means of consumption, so that the value of labour-power rises. This may not affect the labour-time required to produce the constant capital, nor will it affect the labour-time required to process materials, to create this commodity. In that case, the value of the commodity remains 100 hours, made up of 60 hours required to reproduce the constant capital, and 40 hours of new labour performed. But, now, if the value of labour-power has risen, we may have this value of 100 hours divided as:-

c 60 + v 30 + s 10 = 100.

Indeed, if say there was a crop failure, the value of the commodity may remain 100 hours, as above, but the value of labour-power may now rise to 50. In that case, we would have:-

c 60 + v 50 + s -10. 

As Marx, points out in Theories of Surplus Value, Chapter 4, when discussing productive labour, it is not the absolute productivity of labour that counts, but its relative productivity, i.e. its ability to create more new value than is required for its own reproduction. 

“Productivity in the capitalist sense is based on relative productivity—that the worker not only replaces an old value, but creates a new one; that he materialises more labour-time in his product than is materialised in the product that keeps him in existence as a worker. It is this kind of productive wage-labour that is the basis for the existence of capital.” (TOSV 1, p 153)

Here, labour is absolutely productive – it creates 40 hours of positive, new value – but it is relatively unproductive, because the positive new value it creates, is less than the value required for its own reproduction. As Marx points out in Theories of Surplus Value, the definition of productive labour is that it both exchanges with capital, rather than revenue, and that it produces surplus value.

“Productive labour, in its meaning for capitalist production, is wage-labour which, exchanged against the variable part of capital (the part of the capital that is spent on wages), reproduces not only this part of the capital (or the value of its own labour-power), but in addition produces surplus-value for the capitalist.” (TOSV 1, p 152) 

In other words, although the labour-power employed continues to create 40 hours of positive, new value, because it is employed for these 40 hours, this new value produced, is less than the value required to reproduce the labour-power consumed, because the crop failure means that the value of food has risen, causing the value of labour-power to rise sharply. Instead of it producing a surplus value, it produces a loss of 10, which means that the capital must be contracted, it cannot reproduce itself fully.

Indeed, as Marx sets out in Theories of Surplus Value, Chapter 17, this is the basis of Ricardo's erroneous theory of crisis, based on the law of a falling rate of profit.  Ricardo, following Malthus erroneous theory of diminishing returns, believed that as the industry grew, agriculture and primary production would be forced to move to less and less fertile land.  That would push up the price of materials, but more importantly, the price of food.  That would raise the value of labour-power, forcing wages higher, and thereby reducing profit, until it ultimately disappeared, bringing about a catastrophic end to capitalism itself.

In other words, Ricardo's theory of crisis resulting from the law of the rate of profit to fall is based upon falling social productivity, which causes the rate of surplus value to fall.  Marx points out that the opposite is the case.  The Law of the Tendency for the Rate of Profit to Fall, is based upon rising not falling productivity, and a rising not falling rate of surplus value.  It is also for this reason that the falling rate of profit/profit margin occurs simultaneously with a rising general annual rate of profit.

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Differential Rent II

Differential Rent II arises when, instead of additional capital being invested on additional land, the same land is cultivated, but increasing increments of capital are applied to it. Differential Rent I remains at the root of this form of rent, but the changes in the amounts of surplus profits obtained result from the marginal productivity of the capital employed.

With Differential Rent I, the same amount of capital is applied in each case.  Any differences in output can then be seen to be attributable to the fertility of the particular type of land, not to the capital.  But, with Differential Rent II, the starting point is one type of land, to which varying quantities of capital are applied.  In that way, any changes in output can be determined as the product of this additional capital.

In modern orthodox economics, the three factors of production - land, labour and capital - are treated separately to determine their marginal productivity.  In other words, two of these factors would be held constant, and the result of marginal increments of the third analysed to determine its marginal product.  But, Marx includes labour in capital, in this analysis, because the capital applied consists of both constant and variable capital, and with prices of production, the profit appropriated by each capital is determined by the average rate of profit.

If we take, a hectare of land, therefore, if £1,000 of capital is applied to it, and it produces 1,000 kilos of wheat, and then on the same piece of land, observe that £2,000 of capital produces 2,000 kilos of wheat, we can determine that this additional 1,000 kilos is the product of this additional £1,000 of capital.  The amount of additional output produced by this additional £1,000 of capital, is the same as that produced by the first £1,000 of capital, and so the marginal productivity of capital here would be constant.  However, if the additional £1,000 of capital resulted in output rising to 2,500 kilos, this second instalment of capital would have been responsible for an additional 1,500 kilos.  In that case, the marginal productivity of capital would be rising.  Conversely, if the output rose, but only rose to say, 1,800 kilos, the second instalment of capital would have caused this rise in output, but it would be a rise in output of only 800 kilos, compared to the initial 1,000 kilos.  In that case, the marginal productivity of capital would be falling.

Land Type	Cost of Production £	Output	Price of Production £	Income £	Profit £	Rate of Profit %	Surplus Profit/ Rent £
A	4,000	4,000	1.25	5,000	1,000	25.00	0
B	8,000	15,000	1.25	18,750	10,750	134.38	8,750
C	4,000	6,000	1.25	7,500	3,500	87.50	2,500
	16,000	25,000	1.25	31,250	15,250	95.30	11,250

As a result of a rising marginal productivity of capital, it now becomes land type B which produces the highest surplus profit and rent. The capital employed has doubled, but the output has trebled, causing the rise in the rate of profit.

In their analysis of rent, Marx and Engels give numerous examples of these multifarious changes in the amount of rent produced by different marginal productivities of land and capital, and under conditions where the marginal productivity may be rising or falling. Production on a larger scale makes possible the use of more effective capital, for instance. The continued use of fertiliser, and working of the land, can bring about more permanent changes in fertility etc.

Another aspect of Marx's analysis of rent is the difference between the rate of rent and rent per hectare (rental), and again, this is affected by whether the rent is a consequence of Differential Rent I or II. Where cultivation is more extensive than intensive, additional areas of land are brought into cultivation to satisfy the increased demand for agricultural products. The consequence is that more rent is levied, in total, but the amount of rent per hectare may be unchanged, because more hectares are cultivated. If however, the increased output is achieved by a more intensive cultivation, by applying more capital, this may result in an absolute rise in rents, as Differential Rent II rises, but as no additional land is brought into cultivation, the rent per hectare rises. 

As with Differential Rent I the surplus profit, created by the marginal increments of capital, is the equivalent of the marginal revenue product of capital, in orthodox economics. But, similarly, as with Differential Rent I, although these marginal increments of capital result in variable increases in the physical product, that is not the same as an increase in the value created. The value created depends upon the labour-time expended, and if the employment of additional capital results in an increase in the volume of output relative to any given amount of labour-time expended, the value per unit of output will necessarily fall.

Capital III, Chapter 47 - Part 26

In the case of the small producers, Marx says, rational cultivation is impossible, because they lack the means and the knowledge to apply social productivity. Lenin, writing on agriculture, quotes Kautsky's analysis that it was only the more developed western European agricultural labourers who had shaken off the limitations of individualism, typical of the small peasant, and developed a sense of social solidarity through their trades unions, and other such bodies, who could develop agricultural co-ops, like Ralahine, that offered a progressive and superior alternative to capitalist farms.

But, rational agriculture was not possible for the large capitalist farms either, Marx says, because they were driven by the market, which led to both the soil and the agricultural labourers being degraded.

“Small landed property presupposes that the overwhelming majority of the population is rural, and that not social, but isolated labour predominates; and that, therefore, under such conditions wealth and development of reproduction, both of its material and spiritual prerequisites, are out of the question, and thereby also the prerequisites for rational cultivation. On the other hand, large landed property reduces the agricultural population to a constantly falling minimum, and confronts it with a constantly growing industrial population crowded together in large cities. It thereby creates conditions which cause an irreparable break in the coherence of social interchange prescribed by the natural laws of life. As a result, the vitality of the soil is squandered, and this prodigality is carried by commerce far beyond the borders of a particular state (Liebig). [ Liebig, Die Chemie in ihrer Anwendung auf Agricultur und Physiologie, Braunschweig, 1862. — Ed.] (p 813)

That was particularly evident at the time Marx was writing. Engels had detailed, at length, the appalling conditions of workers in the towns, but, as Marx sets out, the conditions of agricultural workers, and those of other workers detailed in Capital I, such as the miners, or the itinerant workers, moving around the country, building railways, roads, canals etc. was often worse.

“While small landed property creates a class of barbarians standing halfway outside of society, a class combining all the crudeness of primitive forms of society with the anguish and misery of civilised countries, large landed property undermines labour-power in the last region, where its prime energy seeks refuge and stores up its strength as a reserve fund for the regeneration of the vital force of nations — on the land itself. Large-scale industry and large-scale mechanised agriculture work together. If originally distinguished by the fact that the former lays waste and destroys principally labour-power, hence the natural force of human beings, whereas the latter more directly exhausts the natural vitality of the soil, they join hands in the further course of development in that the industrial system in the countryside also enervates the labourers, and industry and commerce on their part supply agriculture with the means for exhausting the soil.” (p 813)

Yet, it seems to me that this is a peculiarly one-sided, rather than dialectical view presented by Marx. It sounds more like a Malthusian or Ricardian pessimistic view, as opposed to the generally optimistic view of the potential for progress and modernisation that Marx usually presents, and which he also set out in the previous chapter. In Capital I, having lent on such a view of the destructive nature of capital, in respect of the extension of the working day beyond natural limits, Marx then described how the objective requirement of capital not to kill the goose that lays the golden egg, leads it, despite competition between capitals, to establish a normal working day, and to enshrine it in law, along with other similar provisions of the Factory Acts, so as to be able to continue to harvest surplus value from the workers in increasing masses.

Engels in his later Prefaces to his own “Condition of the Working Class in England”, sets out how the development of capitalism itself is sufficient to bring about such changes, in the self interest of the capitalists as a class.

“And in proportion as this increase took place, in the same proportion did manufacturing industry become apparently moralised. The competition of manufacturer against manufacturer by means of petty thefts upon the workpeople did no longer pay. Trade had outgrown such low means of making money; they were not worth while practising for the manufacturing millionaire, and served merely to keep alive the competition of smaller traders, thankful to pick up a penny wherever they could. Thus the truck system was suppressed, the Ten Hours’ Bill was enacted, and a number of other secondary reforms introduced — much against the spirit of Free Trade and unbridled competition, but quite as much in favour of the giant-capitalist in his competition with his less favoured brother. Moreover, the larger the concern, and with it the number of hands, the greater the loss and inconvenience caused by every conflict between master and men; and thus a new spirit came over the masters, especially the large ones, which taught them to avoid unnecessary squabbles, to acquiesce in the existence and power of Trades’ Unions, and finally even to discover in strikes — at opportune times — a powerful means to serve their own ends. The largest manufacturers, formerly the leaders of the war against the working-class, were now the foremost to preach peace and harmony. And for a very good reason. The fact is that all these concessions to justice and philanthropy were nothing else but means to accelerate the concentration of capital in the hands of the few, for whom the niggardly extra extortions of former years had lost all importance and had become actual nuisances; and to crush all the quicker and all the safer their smaller competitors, who could not make both ends meet without such perquisites. Thus the development of production on the basis of the capitalistic system has of itself sufficed — at least in the leading industries, for in the more unimportant branches this is far from being the case — to do away with all those minor grievances which aggravated the workman’s fate during its earlier stages.” 

Moreover, Engels in his Critique of the Erfurt Programme, and in various comments in Capital III, sets out the way that the replacement of private capital with socialised capital, in the form first of the joint stock companies and later the giant trusts and corporations, also leads to the ending of the “planlessness” of the early form of capitalist production. In the twentieth century, that process of introducing ever greater planning into the functioning of capitalism both at the level of the enterprise, and of the national, and even international economy, has proceeded further. In agriculture it is reflected in the introduction, for example, in Britain, after WWII, of the Milk Marketing Board, and later by the introduction of the Common Agricultural Policy in the EEC. It is seen in the various agreements to preserve fish stocks, by imposing quotas on the amount of fish of varying types that can be caught in particular waters.

Similarly, Marx has set forth the way capital was able to apply science and technology to agriculture, as much as to any other industry. The development of machinery enabled land to be ploughed, drainage to be introduced,, as well as livestock to be improved and so on. In fact, there is at least, if not more evidence of human activity in the past, causing despoliation of the land, and desertification than has capitalism, which, especially in the form of large agribusinesses has an incentive to protect the land over the longer term, as a valuable asset, just at it learned not to allow unchecked competition to lead to a destruction of the working-class.

Back To Part 25

Forward To Chapter 48

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Labour's Appearance and Reality - Part 1 of 2

Jeremy Corbyn has once again defied all of the attempts of the Tory media, and of the Labour right to prevent him becoming Labour leader. His position has, in fact, been strengthened. Reflecting the bizarre bubble in which his opponents exist, the first thing they did, after his victory, was to set out a series of demands on him, which he “must” concede to them!

The most prominent of those demands has been that Jeremy must introduce election of the Shadow Cabinet by the PLP. They present this demand, as though it is them offering an olive branch to Corbyn, that if he allows such election, they may be so gracious as to take up the positions in the Shadow Cabinet that they only months ago resiled from, in their failed attempt at a coup to remove Corbyn as Leader. But, of course, what they want everyone to believe appears to be the reason for this proposal is not the reality.

The PLP previously, under Ed Miliband, voted to end the process of electing the Shadow Cabinet. So, why do they now want to introduce the process, and why would such elections make any difference to them participating as Shadow Ministers? The reality is, of course, that their demand that Jeremy allow them to dictate who will be in his Shadow Cabinet has nothing to do with democracy, or with them offering up an olive branch. Having failed to retain, for themselves, the decision of who should be on the ballot paper for the position of Leader, and having then failed to be able to put forward any candidate that could beat Jeremy, they have fallen back to another undemocratic position.

They want to have the power to elect the Shadow Cabinet only in order to isolate Jeremy, to remove all of his supporters from the prominent positions, and thereby to dictate party policy. in Parliament, and to have a justification for dominating the airwaves, even more than the Tory media allow them currently. Where previously they admitted trying to kidnap him when he stood outside his office, so as to bully him into resigning, now they want to hold him hostage within the Shadow Cabinet in the hope of achieving the same effect.  A look at the strategy of that Tory media over recent weeks reveals what is really going on. On issue after issue, that media has called forth former Shadow Ministers to comment on matters arising in Parliament, rather than the current Shadow Minister. Its also clear why many of Jeremy's parliamentary opponents want to secure for themselves positions as chairs of select committees, because that too gives them a redoubt from which to attack him, as Keith Vaz did over anti-Semitism, as well as to justify their frequent appearance in front of the cameras.

However, its quite right that the Shadow Cabinet, as well as the Cabinet when Labour is in office, should be elected, but it should be elected, like the Leader and Deputy Leader, by the whole party, not just by a couple of hundred members who happen to be MP's. The Leader and Deputy Leader of the party, are the party's choice for who should fulfil the roles of Prime Minister and Deputy Prime Minister, it makes perfect sense, therefore, that each year, the party should also vote for who it believes should hold the other Shadow Cabinet positions, in just the same way that each year, the members of the NEC are elected.

The PLP respond to the idea that the party should elect the Shadow Cabinet by arguing that they represent millions of voters, whereas party members amount to only a few hundred thousand. But, again the superficial appearance here conflicts sharply with the reality. For the last three hundred years, British parliamentary democracy has been a party based democracy. In other words, rather than individuals putting themselves up for election, and winning support on the basis of their personal talents, they put themselves up for election, primarily, as a representative of a political party, of the general set of ideas, which that party promotes. It is the members of the party, which determine its ideology, its program and so on, and which then select individuals to represent it in elections.

The reality is that the MP's remain nothing more than individuals, and individual members of the party. Were it not for the party and its members, the individual MP would never have been elected. In systems of proportional representation, based on the party list system, that is even clearer, because it is the party which then directly determines which of its candidates from the list will actually sit in parliament. The Labour right are not relying on democratic ideas for their arguments, but a relapse into 17th century feudalism.

But, of course, even that is a charade. The Labour right, if they truly believed in this argument could easily justify it. All they had to do was to recruit a tiny fraction of those millions of supporters they claim to have in the wider electorate. They say they represent 10 million voters. To have won the leadership election – after they had disenfranchised 130,000 party members from voting – they needed an additional 100,000 votes. That represents just 1% of that 10 million people they claim supports them.

Yet, despite the fact that they have the massed ranks of the Tory media standing behind them, despite the fact that they have secretive, closed, conspiratorial organisations such as Labour First, Progress, Saving Labour and so on, as well as various millionaires, and billionaires throwing their weight behind trying to recruit people to support the forces of the right, they were not able to win the support of any of these additional voters. In fact, they went backwards. Jeremy's majority increased, and of the new members brought into the party, he won 85% of the vote!

And here lies another conflict between appearance and reality. The Labour right tell us that only they have the leadership skills, the policies and the strategic ability to beat the Tories and win the next election. Well, if they do not have any of those things sufficient to be able to win a majority within the party, why on Earth should we believe their assertion that they would have better results in a wider election? The fact, is that in terms of policies, they have nothing clear or distinctive from what the Tories are already offering, what they are offering was rejected by voters in 2010 and 2015. Even what they are suggesting through some of their mouthpieces, of some kind of lash up with the Liberals, is a non-starter, because those same policies put forward by the Liberals were decisively rejected by voters in 2015.  If they truly believed their own spin, they would save themselves the trouble of arguing with party members, and simply go off and rely on their personal talents to win an election for their parliamentary seat, or they would do what at least the SDP had the bottle to do, which is to set up their own party, and put their claims to the test.  They won't because they know what happened to the SDP, and subsequently to the Liberals.

Back in the late 70's and early 80's, for about three or four years, we used to turn up to party meetings thinking we had enough support to defeat the old right, only to find that they had pulled a few more people out of the woodwork, who we had never seen before, and often never saw again until the next AGM or selection meeting. These people who we had never seen before, would come along and hurl abuse at us, describing us as all kinds of devil's spawn. Today's right do not even have the organisational ability and backbone of the old right of that time. They are lazy and flabby, having come to rely on spin, and their access to the Tory media. They huddle together proclaiming their commitment to staying and fighting, but they are far more likely to rely on others to do any fighting of any kind, verbal or metaphorical, on their behalf. They have all sorts of professional body guards in that respect.  Even compared with their 1980's equivalents they are weak-kneed, and lacking in any kind of moral fibre.

Their own strategic and organisation skills were shown by their abortive coup attempt, followed by the laughable and equally abortive leadership campaign of Angela Eagle. At party conference, having been even more decisively defeated than they were last year, they immediately again began spinning and abusing the membership such as the comment by Phil Collins, who tweeted that the number of spoiled votes had been 61.8%, and the others on the right who tweeted images of their party cards being ripped up. And of those that were left couldn't even organise a piss-up in a pub. They booked a room in a pub for their fringe meeting that was not even big enough for the few dozen of their supporters who turned up to hear the whingeing of a handful of has been Blair-right MP's, sobbing into their beer mug over losing the potential future sinecures they had counted upon.

Forward To Part 2

Capital III, Chapter 47 - Part 25

Marx is right, however, that the price of land, and with it rent, acts as a limitation of production. But, the same is true of interest, as a price of loanable money-capital. Neither interest nor rent are value adding, but they do form a part of the cost of production, and thereby reduce surplus value. They reduce the amount of value/social labour-time that can be allocated to increasing productive capacity, because they represent a diversion of that value away from capital to revenue, i.e. they finance the unproductive consumption – including speculation - of the rentier, be they a landowner or owner of loanable money-capital.

However, the question for a post-capitalist society would still be whether these prices fulfilled, at least in the transitional period, a useful function in ensuring a rational allocation of resources. We have seen repeatedly that where interest rates are low, this leads to malinvestment of capital, as well as speculation.

The latter may be avoided or reduced in a transitional economy, but there is no reason to believe the former would be. Similarly, if land were free, the same question arises of determining which of all the contending alternative uses for any piece of land, provide the greatest benefit.

In a fully planned economy, that question still needs to be addressed, because its use for one function precludes its use for all others, and some means of comparing costs with benefits, value against use value is still required.

It may still, in the transitional period, where commodity production continues, undertaken by numerous worker-owned co-operative enterprises, be required to retain such prices, but for all rent and interest to be paid into a central fund, initially in the hands of a co-operative federal holding company, and later the hands of the workers' semi-state. In that way, these prices can continue to play a role in preventing misallocation of capital, but the value itself can be accumulated and used for productive investment.

Back To Part 24

Forward To Part 26

Differential Rent I

Differential Rent I arises, because the land in cultivation has different levels of fertility. This applies also to things such as mining, where different mines produce more or less output for any given amount of employed capital and labour.

In orthodox economics terms, this equates to the marginal productivity of land. Indeed, the marginalist analysis that Marx undertakes here, building on the work of Ricardo, who himself took his theory from Anderson, essentially forms the basis of the development of marginalist analysis by the neo-classical economists.  Its unfortunate that Marx did not have the mathematical tools that the later marginalist school developed, because, if he had, it would have avoided some of the weakness in the conclusions he develops, out of his examples, in terms of resultant market prices.

The difference between Marx and the marginalists, in this respect, is as follows. The marginalists identify an amount of additional product that arises from adding an additional unit of some factor of production. This is called the marginal physical product. They then multiply this marginal physical product by the price of the commodity to arrive at a marginal revenue product, which they claim is thereby the amount of value which this additional unit of input has added to the end product. The most efficient point is reached when the price of the factor input is equal to this marginal revenue product.

Marx agrees that a factor such as land can be more or less productive. Land A might be less productive/fertile than land B, which might be less productive than land C, and so on. But, this productivity is only in terms of use values. In other words, a given amount of labour employed on land C, will produce a greater quantity of corn than the same amount of labour applied to land B, which in turn will be greater than the quantity of corn produced on land A. However, suppose that 10 hours of labour is applied to each type of land. If we ignore any constant capital, the amount of value produced, in each case, will be 10 hours.

However, this 10 hours of value will be embodied in a different quantity of use values in each case. Let 10 hours of value be equal to £100. Suppose, that land A produces 1,000 kilos of corn, B 1,500 kilos, and C 2,000 kilos. The consequence is that the individual value of a kilo of corn produced on A is then £0.10, on B it is £0.07, and on C it is £0.05. The point is that the value of corn, for Marx, is determined by the labour-time required for its production. More fertile land, means that labour can produce any given quantity of wheat in less time, and so the value of that wheat is thereby reduced compared with wheat produced on less fertile land. The same would apply to a machine that enhances the productivity of labour. In fact, rather than such a machine, or a more fertile type of land, contributing additional value, as the marginalists suggest, they reduce value, because they reduce the amount of the value creating substance - labour - required to produce any given quantity of use values.

The marginalist error arises, in this relation, because they have inherited the error of Adam Smith, the “absurd notion”, as Marx describes it, that the value of a commodity can be reduced to the factor inputs – land, labour, and capital – and that, therefore, the value of a commodity is equal to the revenues received by these factors, in the shape of rent, wages and profits. Like Smith, therefore, they end up with a cost of production theory of value. 

The basis of Differential Rent I can be seen in the following example. The average rate of profit is determined in industry. An average rate of profit of 25% is assumed.

Land Type	Cost of Production £	Output	Price of Production £	Income £	Profit £	Rate of Profit %	Surplus Profit/ Rent £
A	4,000	4,000	1.25	5,000	1,000	25.00	0
B	4,000	5,000	1.25	6,250	2,250	56.25	1,250
C	4,000	6,000	1.25	7,500	3,500	87.50	2,500
	12,000	15,000	1.25	18,750	6,750	56.25	3,750

Unless capitals invested in land A can make the average rate of profit of 25%, they will not undertake production. That requires a market price of £1.25 per unit. At that price, however, capital invested on land type B, makes a surplus profit of £1,250, and on land type C a surplus profit of £2,500. These surplus profits are absorbed as Differential Rent I, by the landlords who own land type B and C.

Ricardo believed that it must be the case that capitals use the most fertile lands first. It was this belief that underlay his and Malthus' belief that the cost of producing food to feed a growing working population would continually rise, as less and less fertile land had to be brought into cultivation. It was the basis of Ricardo's faulty theory about the tendency for the rate of profit to fall, as wages had to rise to cover this higher cost of food.

Marx demonstrates, at length, that this view is false. There are numerous reasons why it is not the most fertile land, which is first brought into cultivation. The most fertile land may be distant from population centres, or means of transport; land may be fundamentally very fertile, but currently unused, because it requires large amounts of capital to first provide drainage etc. The development of technology may make possible the cultivation of land that was not previously cultivable. For example, the development of powerful steam engines was able to drive ploughs that were able to turn over much deeper, more fertile layers of soil.

Marx and Engels provide numerous examples of situations where it is first the least fertile soil to be developed, and only then the more fertile soil; then examples of where it is the most fertile cultivated first, moving to the least fertile; and then examples where a combined process may take place with first the more fertile soil cultivated, followed by a less fertile soil, followed by a more fertile soil, and so on.

In economic terms, the differential rent arises here because, the higher fertility of one type of land over another enables a surplus profit to be created, for capital employed on the more fertile land. But, it is the existence of landed property that enables this surplus profit to then take the form of the differential rent, which is pocketed by the landowner. If all land were of the same quality, whether that quality was good, bad or indifferent, differential rent could not exist. It does not arise as a result of the absolute fertility of the land, but only as a result of its relative fertility. Similarly, if there was an abundance of the most fertile soil, so that capital could always find some to cultivate, without the need to bring in to cultivation less fertile soil, differential rent could not exist.

This is an essential difference between agriculture and industry that gives rise to the existence of rent. In industry, surplus profits also exist, but they are competed away as capital from less profitable spheres enters those spheres where the rate of profit is higher. Within a particular sphere, an individual firm, might produce at a lower individual value than the market value, and thereby also make surplus profits, for example, as a result of introducing a new more productive machine, but again, other firms can then also introduce the same machine, and so reduce the labour-time they require for production, thereby reducing the individual value of their own output, so that again any surplus profit is competed away. But, in agriculture, capital can only obtain the benefit of more fertile land, if it first pays the differential rent to the landowner. Consequently, capital is prevented from freely entering agricultural production, and thereby increasing supply, reducing agricultural prices, and so competing away the surplus profit.

Capital III, Chapter 47 - Part 24

Marx's theory of rent, I think, is back to front. It determines the price of land as capitalised rent, whereas it should derive the price of land, like the price of loanable money-capital, as a function of its demand and supply, and having derived the price of land, on that basis, it should then see rent as the equivalent of interest on it.

If the rate of interest rises too high, it absorbs all surplus value, and thereby makes capitalist production impossible. But, similarly, if the price of land, or rent, rises too high, it also absorbs all surplus value, and makes capitalist production impossible.  In fact, we may be seeing that today in Britain, with the astronomical prices for building land that makes the potential for profitable construction of houses very difficult.

“The price of land, this element foreign to production in itself, may therefore rise here to such a point that it makes production impossible (Dombasle). 

The fact that the price of land plays such a role, that purchase and sale, the circulation of land as a commodity, develops to this degree, is practically a result of the development of the capitalist mode of production in so far as a commodity is here the general form of all products and all instruments of production.” (p 811)

Marx goes on, however, to argue that this situation of high land prices, together with high rates of interest, is only possible where capitalist production has not been fully developed. It is similar to Lenin's remark that Russia suffered not only from capitalism, but also from not enough capitalism.

“On the other hand, this development takes place only where the capitalist mode of production has a limited development and does not unfold all of its peculiarities, because this rests precisely upon the fact that agriculture is no longer, or not yet, subject to the capitalist mode of production, but rather to one handed down from extinct forms of society. The disadvantages of the capitalist mode of production, with its dependence of the producer upon the money-price of his product, coincide here therefore with the disadvantages occasioned by the imperfect development of the capitalist mode of production. The peasant turns merchant and industrialist without the conditions enabling him to produce his products as commodities.” (p 811-2)

This may be true, but it is also true that high land prices can exist alongside high interest rates, under more developed capitalist production too. If the rate of profit is high, the demand for land, as with the demand for loanable money-capital, is likely to be high and certainly rising too. Whether the price of land rises, and by how much, will depend on the potential supply and the extent of the demand, whilst the extent to which interest rates rise, will be determined by the extent to which the demand for money-capital can be met, or even exceeded by the supply.

The demand for land, like the demand for loanable money-capital is determined by the potential to use it productively so as to expand capital value, and that is a function of the general rate of profit. The supply of land, however, like the supply of loanable money-capital, is a function of its capacity to generate income. If interest rates are high, the owners of loanable money-capital will be prepared to lend more of it, putting downward pressure on rates. If the price of land is high, the owners of land will be prepared to supply more of it, either for sale, or for rent, again putting downward pressure on those prices.  Of course, as the situation of the last thirty years has shown this may not be the case where speculation drives a concern to seek speculative capital gains rather than yield.  In that case, land owners may hoard land precisely in the expectation that its future price will be much higher.

Back To Part 23

Forward To Part 25