For Carey, rent is explained away as nothing more than interest on capital previously invested in the land. I will come back to this separately, in setting out my own views on rent and interest, in conditions where land becomes bought and sold as a commodity, similar to the way financial assets, such as shares and bonds are sold as commodities.
Ricardo's view, however, is superior to those such as David Buchanan or Thomas Hopkins, for whom rent is just a consequence of monopoly, and thereby represents a surcharge, on top of the value of agricultural products.
The source of Ricardo's theory of rent is James Anderson. However, Ricardo links it to his theory of value, and this means that the rent is at least anchored. It is no longer some arbitrary amount, added to the price of of the commodity. But, the weakness of Ricardo's theory is that referred to earlier that he confuses surplus value and profit, and value and price.
He starts from a correct idea about the value of commodities being determined by the social labour-time required for their production, but then mistakes their value for the price of production of the commodity. The profit then is not the same as the surplus value, because, in one sphere, the amount of profit included in the price of the commodity may be greater than the surplus value, and in another the profit will be less than the surplus value.
In any sphere where the profit is less than the surplus value, the price of production of the commodity will be lower than its value, and consequently, an additional amount, for example rent, may be levied, and yet the price of the commodity will still only equal its value. For example, suppose the value of a commodity is equal to £1,000. It may comprise £200 constant capital, £400 variable capital, and £400 surplus value. If we assume the average rate of profit is 10%, the capital here is equal to £200 + £400 = £600, and so the profit would be £60, giving a price of production of £660. If a rent of £340 is levied, this will bring the price of the commodity to £1,000, equal to its value, and the capital employed will still have obtained the average rate of profit.
Marx sets out three circumstances. In the first, the price of production of a commodity is higher than its exchange value, because this higher price is required to produce the average rate of profit. Below this price, capital would not make average profit, so it would leave, supply would fall, and market prices would rise.
In the second case, the price of production is lower than the exchange value. That is because, at the exchange value, above average profits are made, which attracts additional capital, so supply rises and market prices fall.
In the third case, the price of production equals the exchange value of the commodity producing average profit.
It is impossible where capital and labour move freely then for the price of production to be forced up so as to produce a price of production which generates a surplus profit, so as to thereby pay a rent, because under such conditions, capital and labour would move into this sphere, pushing prices down to the average level, so that if a rent was then paid, a lower than average profit would obtain.
“So there is nothing left but to assume that special circumstances exist in this particular sphere of production, which influence the situation and cause the prices of the commodities to realise [the whole] of their intrinsic surplus-value, This in contrast to [case] 2 of the other commodities, where only as much of their intrinsic surplus-value is realised by their prices as is yielded by the general rate of profit, where their average prices fall so far below their surplus-value that they only yield the general rate of profit, or in other words their average profit is no greater than that in all other spheres of production of capital.” (p 36)
The price of the commodity cannot be explained by the need to cover the cost of production, plus average profit, plus rent. Rather, it is the price of the commodity which explains why the capital that produces it can obtain average profit, and yet also pay a rent.
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