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.

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