Theories of Surplus Value, Part II, Chapter 8 - Part 10

[b) Formulation of the Problem of Rent]

An average rate of profit is established because capital moves to high profit spheres, increasing supply and thereby reducing market prices, for commodities in that sphere. Its this process which establishes prices of production for each sphere, which are then cost of production (k) plus this average profit (p). Market prices revolve around this price of production, and not around the exchange-value of the commodity, as Smith, Ricardo and Rodbertus believed.

But, what if there were factors that permanently prevented this process from playing out in some particular sphere? Its always the case that various frictions prevent capital moving easily or swiftly from one area to another, but what if that condition existed as a permanent feature for some sphere? In that case, the market price of commodities in that sphere would revolve around their exchange-value not their price of production. If, in this sphere, the organic composition of capital were lower than the average, then the rate of profit would be high as a result of the proportion of surplus value in the commodity value being high.

What could enable this condition to persist? If the rate of profit in this sphere was higher than the average, why would not other capitals enter this production, and thereby cause the supply to rise, the price of the commodities to fall, and the rate of profit fall to the average? Its obvious that, in some spheres, there are monopolies, and so that monopoly itself restricts additional entrants, and thereby prevents supply from rising. Prices are kept high, and the rate of profit then remains above the average. The price of the commodity, in such a sphere, would then continue to be equal to its exchange-value, but capital, in this sphere, would only obtain the average profit, whilst the excess, over this average profit, would constitute rent.

“Rent (for instance, in agriculture) can be nothing other than an excess above general profit where—as he presupposes—agriculture is run on capitalist lines, where [there] is [a] farmer. Whether that which the landlord receives is actually equal to this rent in the bourgeois-economic sense is quite irrelevant. It may be purely a deduction from wages (vide Ireland) or it may be partly derived from the reduction of the farmer’s profit below the average level of profits. Which of these possible factors happens to be operative is of no consequence whatsoever. Rent, in the bourgeois system, only exists as a special, characteristic form of surplus-value in so far as it is an excess over and above (general) profit.” (p 31)

Ricardo's problem in trying to understand rent, and where it comes from, is essentially two-fold. Firstly, he confuses surplus value and profit. Secondly, he assumes that all commodities sell at their exchange-value, and that their market price revolves around this exchange-value. Ricardo begins then from a situation where a capitalist farmer only obtains the average rate of profit, like every other capitalist. The price of grain, as with all other commodities revolves around its exchange-value. As Marx points out, this is presented as a pseudo-historical scenario. Ricardo then assumes that the demand for grain rises sharply so that prices rise. This rise in price causes additional capital to be invested, as these higher prices also cause profits to rise. 

But, this additional capital can only be invested in less fertile soil. That means that the capital invested on the original, more fertile, soil now makes surplus profits. The owner of this land thereby charges the farmer a rent for the use of this more fertile soil, and this rent then swallow up the surplus profit.

Marx also points out that other factors come into play. The rise in grain prices causes the value of labour-power to rise, and that means all capitals have to pay higher wages, so the rate of profit then falls.

“So here we have Ricardo’s theory. The higher price of corn, which yields an excess profit to I, does not yield even as much as the earlier rate of profit for II. It is thus clear that product II contains more value than product I, i.e., it is the product of more labour-time, it embodies a greater quantity of labour. Therefore more labour-time must be supplied to manufacture the same product—say, for instance, a quarter of wheat.” (p 33)

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