Profit, Rent, Interest and Asset Prices - Part 18 of 19

The value of labour-power is objectively determined by the labour-time required for the reproduction of that labour-power, i.e. to produce all of the commodities required for the reproduction of the worker. But, similarly, as Marx says in Capital II, the reason that simple reproduction continues to sit at the heart of expanded reproduction is that the capitalist, as the personification of capital also needs to reproduce themselves, i.e. needs to allocate a proportion of surplus value for their own subsistence. Indeed, as capitalism develops, this subsistence expands into the desire of the capitalist to also engage in the consumption of luxuries.

This indeed, becomes a regulator also of the level of wages, and the rate of surplus value, and consequently the rate of profit. If wages rise beyond a certain level, and the rate of surplus value falls, thereby causing a fall in the rate of profit, capitalists may reduce their accumulation of capital, and increase their unproductive consumption. As the rate of capital accumulation slows, the increase in the demand for labour-power slows, and as the supply of labour-power rises, with population growth, so this acts to reduce wages, and raise the rate of surplus value.

Similarly, the owners of interest-bearing capital, and of land, seek to obtain revenues that enable them to maintain a given standard of living. As Marx put it in relation to the interest-bearing capital,

“If an untowardly large section of capitalists were to convert their capital into money-capital, the result would be a frightful depreciation of money-capital and a frightful fall in the rate of interest; many would at once face the impossibility of living on their interest, and would hence be compelled to reconvert into industrial capitalists.” (Capital III, Chapter 23, p 378) 

The owners of land, therefore, need to be able to obtain a sufficient income, in rent, so as to be able to reproduce themselves. In previous centuries, the landed aristocracy, having run up large debts, or having continued with a lavish lifestyle, whilst their rents failed to cover their expenses, covered their consumption increasingly by selling land. But, this is self-defeating. A short-term capital gain is made at the expense of longer term revenues. In the same way, pension funds have covered their liabilities by selling bonds and shares, whose nominal prices had been inflated. But, this acts to destroy the capital base of the fund, which is the source of sustainable revenues.

And so, the owners of these different forms of revenue-producing assets are led into a dance in search of the highest risk adjusted yield, the minimum level of which is that which enables them to sustain their standard of living. But, even here, the reality is more complex. The ability to sustain such a standard of living is not merely a function of the nominal revenues produced by the different assets, but also of the value of commodities required to sustain that living standard. In the same way that capitalist development proceeds not only on the basis of an accumulation of capital, but also on the basis of a rising level of social productivity, manifest in a rising organic composition of capital, which results in lower values for the commodities that comprise capital, so it also results in lower values for all those commodities that the exploiters consume unproductively. So, even if a money-lending capitalist, or landlord continues to obtain, say, £100,000 a year in revenue, this may represent a rising standard of living, if the commodities they consume fall in value from £100,000 to £90,000.

Marx says that, for a capitalist to be solely a capitalist, the very minimum that is required is that the surplus value they extract, is equal to the value of labour-power. In other words, if they were to only employ one worker, and the rate of surplus value was 50%, the surplus value they extract would only provide them with enough value to enjoy half the living standard of the worker. It would mean that the capitalist themselves would have to engage in labour, in order to be able to sustain themselves. If they employed two workers they would obtain enough surplus value to be able to just enjoy the same standard of living as the worker, without themselves having to work.

Similarly, for someone to be solely a landlord, the very minimum they require as rental income is that sufficient to reproduce themselves. If we assume that all land is of uniform quality, and there is 10,000 hectares of land owned by 10 landlords, each with 1,000 hectares, then for them to exist solely as landlords, the rental on 1,000 hectares must be sufficient to enable them to reproduce themselves. But, what the actual level of rent would be depends upon not just this supply, but also on the demand for the land.

If a landlord requires £10,000 per year to meet their consumption needs, they will require that amount as a minimum rental on their land, or £10 per hectare. If the demand for land is not sufficient to produce such a rental, then each landlord may seek to use the land for other purposes, to allow it to lie fallow, whilst they seek income from elsewhere, or as with the case of the money-capital referred to by Marx above, they may seek to utilise their land productively themselves, i.e. to become a capitalist farmer.  This happened frequently with landowners who operated coal mines on their land.

But, in fact, landed property is not uniformly distributed in this manner. Some landowners may be only small landowners, able barely to obtain sufficient rental income to survive without engaging in productive activity themselves of some kind. Some of these may effectively be just peasant farmers, like the English Yeomanry. They may be able to generate sufficient income only by their productive activity, effectively obtaining no rent for the land they own. Others may be landowners who provide land and means of production to share-croppers. In that case, they generate their income not from rent, but from interest on the capital they loan out. On the other hand, some landowners will own vast tracts of land, so that even with low rentals per hectare, they obtain large total rents, providing them with lavish lifestyles, but also allowing them to take out tracts of land, to maintain rental levels, or to bring land back into production when rental levels are high.

On the basis of a uniform quality of land, therefore, the price of land/rent per hectare will be determined by an interaction of supply and demand for land. The lower bound for that rental is that which enables the landowner to be able to reproduce themselves, and the upper bound is determined by the profit that can be produced by capital from employment on the land. At the lower bound, this is in turn dependent upon the structure of land ownership. If land ownership is widely and fairly evenly spread, competition amongst landowners, seeking to obtain rental income, will tend to push rentals down towards the minimum level. But, for the same reason, that minimum level, per hectare may be higher. Someone who owns 1,000 hectares requires a minimum rental of £10 per hectare to generate the minimum required revenue of £10,000 per annum, but the owner of 1 million hectares, requires a rental of only £0.01 per hectare to generate £10,000 per annum. On the other hand, if land is concentrated in the hands of such large landlords, they can utilise this monopoly position to withhold land so as to force rents higher. Moreover, such large scale landowners will have become accustomed to a much more lavish lifestyle to be sustained than the modest small holder.

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