Capital III, Chapter 47 - Part 23

Under capitalist production, the price of land is capitalised rent, and so stands in an inverse relation to the rate of interest. But, this is not necessarily the case in the condition of pre-capitalist agriculture, where the land is farmed in small parcels owned by independent farmers. Under capitalist production, the farmer obtains credit on the same basis as any other capitalist, but that is not the case for the small peasant producer, who may have to resort to usurers etc. Capitalist production itself generates conditions where a large mass of loanable money-capital is available in a liquid market, as it is continually amassed from realised surplus value, and accumulated in the money reserves previously discussed. It creates a sizeable class of rich capitalists, who have retired from activity, and live off the interest from their accumulated money-capital. These conditions do not exist in pre-capitalist production, and so the interest to be paid, where money is to be borrowed, can be high.

At the same time, because the number of these small producers is high, and they need to have land, almost at any price, because they need it for their subsistence, this demand, against limited supply raises its price. So, land prices may be high, at the same time that interest rates are high.

“The relatively low interest, which the peasant derives here from the outlay of capital for the purchase of land (Mounier), corresponds here, on the other side, to the high usurious interest rate which he himself has to pay to his mortgage creditors. The Irish system bears out the same thing, only in another form.” (p 811)

Moreover, the price per hectare for these small parcels of land may be higher than for large estates, because there are a large number of small farmers exerting a demand for such land, but far fewer large farmers exerting a demand for large estates. The same thing applies today, in relation to the demand for social housing, compared to the demand for expensive properties.

This seems to be a situation where Marx is saying that the price of land is equal to the capitalised rent, except where it isn't! The price of land here is rather a function of the demand and supply for the particular land, just as the rate of interest is determined by the demand and supply of loanable money-capital, which is then a function of the use value of that money-capital, i.e. its capacity to self-expand.

This seems to me to be equally true in relation to land as it is to loanable money-capital. When agricultural profits are high, the demand for agricultural land will rise, and its price will rise accordingly. That land which is more fertile, or has other advantages, such as location, will be more in demand than land that does not have those advantages, and so its price will be higher. Rather than the rent then determining the price of the land, it will be the price of the land, which will determine the level of rent, just as the demand and supply for loanable money-capital determines the rate of interest.

When the demand for land is high, its price will rise, and rents will rise with it, and vice versa. When the price of land is high, and interest rates rise, the price of land will fall, because the owners of land will be more inclined to throw it on to the market, so as to realise its price, and then to invest the proceeds as loanable money-capital, at these higher rates of interest.

Similarly, the demand for land will fall, because potential buyers, who need to borrow, will see their cost of doing so rise, and the potential profit from utilising the land productively will fall.

As with loanable money-capital, because land has no value, it has no objectively determinable equilibrium market price. As with loanable money-capital, its market price can only move within certain upper and lower bounds. If the price of land rises too high, it eliminates the possibility of making agricultural profit. But, the price of land cannot fall to zero, because its owners will not sell it at that price.

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