Theories of Surplus Value, Part II, Chapter 9 - Part 1

[CHAPTER IX] Notes on the History of the Discovery of the So-Called Ricardian Law of Rent. [Supplementary Notes on Rodbertus] (Digression)

[1. The Discovery of the Law of Differential Rent by Anderson. Distortion of Anderson’s Views by His Plagiarist, Malthus, in the Interests of the Landowners]

Ricardo's theory on rent originates with James Anderson. Anderson's theory was plagiarised by Malthus, and it's from him that Ricardo picks it up. Malthus used the theory to provide an apology for the landed aristocracy, who's paid lackey he was. Ricardo used it for the exact opposite purpose. The ideas contained in Anderson's theory were also developed by Sir Edward West.

Anderson was a practical Scottish farmer. His theory of rent was not developed as such, but formed part of another work,"An Enquiry into the Nature of the Corn Laws, with a view to the New Corn Bill Proposed For Scotland" (1777). Marx points out that, at the time, Sir James Steuart was still the leading economist, and everyone's attention was also on Adam Smith's "The Wealth of Nations", which had been published the year before.

"As against this, the work of the Scottish farmer, which had been occasioned by an immediate practical controversy and which did not ex professo deal with rent but only incidentally elucidated its nature, could not attract any attention." (p 114)

His theory of rent appears in several of his other works, again only in an incidental role. The works were published in three volumes by Anderson - " Essays Relating to Agriculture and Rural Affairs".

Marx notes that these works were intended for other practical farmers, and that had Anderson instead have published them as an "Inquiry into the Nature of Rent", they would have attracted much more attention. As it was, they passed by unnoticed. It was not until 1815 that the theory resurfaces in the works of Malthus and West, and is presented as "independent inquiries into the nature of rent." (p 114).

"Furthermore, Malthus used the Andersonian theory of rent to give his population law, for the first time, both an economic and a real (natural-historical) basis, while the nonsense about geometrical and arithmetical progression borrowed from earlier writers, was a purely imaginary hypothesis." (p 115)

In his Preface to "On the Principles of Political Economy and Taxation", Ricardo makes the theory of rent pivotal to political economy. It is the basis of later marginalist theories of value, and Ricardo's theory of economic rent, and his theory of comparative advantage are probably the only elements of Ricardo's theory that most students of orthodox economics have heard of.

"Ricardo evidently did not know Anderson since, in the preface to his Principles of Political Economy, he treats West and Malthus as the originators. Judging by the original manner in which he presents the law, West was possibly as little acquainted with Anderson as Tooke was with Steuart. With Mr. Malthus it is different. A close comparison of his writings shows that he knows and uses Anderson. He was in fact plagiarist by profession." (p 115)

The Corn Laws that Anderson was writing about, in 1777, were not the same Corn Laws that Malthus was writing about.

"Anderson had defended premiums on exports of corn and duties on corn imports, not out of any interest for the landlords, but because he believed that this type of legislation “would reduce the average price of corn” and ensure an even development of the productive forces in agriculture." (p 115)

That is a similar argument as was put forward by, for example, proponents of the Alternative Economic Strategy, as a means of enabling a period of stability so as to facilitate modernising investment. A similar approach was taken in the US, during is period of industrialisation behind high tariff barriers. Marx and Engels in their writings on Free Trade and Protectionism, discuss these different situations.

Malthus supported the later Corn Laws purely as an advocate of the landed aristocracy, whose rents were maintained on the basis of the high prices that the Corn Laws sought to sustain.

“Malthus accepted this practical application of Anderson’s because—being a staunch member of the Established Church of England—he was a professional sycophant of the landed aristocracy, whose rents, sinecures, squandering, heartlessness etc. he justified economically. Malthus defends the interests of the industrial bourgeoisie only in so far as these are identical with the interests of landed property, of the aristocracy, i.e., against the mass of the people, the proletariat. But where these interests diverge and are antagonistic to each other, he sides with the aristocracy against the bourgeoisie. Hence his defence of the “unproductive worker”, over-consumption etc.” (p 115)

Anderson's position is diametrically opposed to that of Malthus. Anderson rejects the idea of rent arising from absolute fertility of the land, and instead explains it on the basis of relative fertility. Where Malthus plucks from the air his theory about agricultural productivity rising only arithmetically as opposed to the geometric progression of population, Anderson not only states that the productivity of all agricultural land can be raised continuously, but that the existing differences between different types of land can be eradicated.

“He said that the present degree of development of agriculture in England gives no indication at all of its possibilities. That is why he said that in one country the prices of corn may be high and rent Low, while in another country the price of corn may be low and rent may he high, and this is in accordance with his principle, since the level and the existence of rents is in both countries determined by the difference between the fertile and the unfertile land, in neither of them by the absolute fertility; in each only by the degree of difference in fertility of the existing types of land, and not by the average fertility of these types of land, From this he concluded that the absolute fertility of agriculture has nothing to do with rent. Hence later, as we shall see below, he declared himself a decided adversary of the Malthusian theory of population and it never dawned on him that his own theory of rent was to serve as the basis of this monstrosity.” (p 116)

The same argument has been put forward by later economists in opposition to the nonsense promoted by modern day Malthusians. (See – Food, Population and Development).

"The theoretical and practical advance which could have been made from this theory was: theoretical—for the determination of the value of the commodity etc. and gaining an insight into the nature of landownership; practical—against the necessity of private ownership of the land, on the basis of bourgeois production and, more immediately, against all state regulations such as corn laws, which enhanced this ownership of land. These advances from Anderson’s theory, Malthus left to Ricardo. " (p 117)

Malthus turned the theory into a justification of his own theory of population and thereby turned it against the proletariat, and in defence of the landed aristocracy. He used it as a defence of protective tariffs which increased the living costs of workers and protected the rents of landlords.

“Utter baseness is a distinctive trait of Malthus—a baseness which can only he indulged in by a parson who sees human suffering as the punishment for sin and who, in any ease, needs a 'vale of tears on earth', but who, at the same time, in view of the living he draws and aided by the dogma of predestination, finds it altogether advantageous to “sweeten” their sojourn in the vale of tears for the ruling classes. The 'baseness' of this mind is also evident in his scientific work. Firstly in his shameless and mechanical plagiarism. Secondly in the cautious, not radical, conclusions which he draws from scientific premises.” (p 117) 

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Spain Cannot Be Free If It Holds Catalunya In Chains

The decision to establish an independent Catalunya is has the potential to be far more catastrophic than Brexit, or to establish an independent Scotland. Britain will suffer catastrophically in economic terms, if Brexit goes ahead, and an independent Scotland would suffer even more catastrophically, in that regard if it separates from Britain. But, England is not threatening to forcibly prevent Scottish independence if the Scots vote for it, and nor is the EU threatening to forcibly prevent Brexit. Catalunya not only will suffer economic catastrophe by separating from Spain, but the fact that the Spanish state is threatening to use force to prevent, even a legal democratic vote taking place, has imposed direct rule over the region, and logically must then back that up by force, threatens plunging the country into civil war.

For socialists, the primary task is to promote the greatest possible unity of the working-class. A look at the divisions that arose in Scotland, or that have arisen over Brexit indicate the potential for the working-class, even within a given country or region, to be highly divided, when the political discourse is overwhelmed by some particularly single issue. A look at the divisions that are opened up by elections in countries where vertical cleavages dominate the polity, for example, ethnic and religious divisions, illustrates the point. Such a division where a particular country or region is led to feel that it must separate, and where that desire is frustrated by the use of force is almost inevitably going to lead to a heightening of those divisions, and the resort to violence to resolve them.

These divisions have a dynamic of their own. The more, for example, Catalunya is denied the right to even express its will via a democratic process, let alone that its will be suppressed by force, the more Catalans will see that as an expression of oppression, and the more they will see that oppression as their primary concern that drives Catalan workers towards making common cause with Catalan bosses.  That can be seen in Scotland, where the Scottish working class has been divided by the question of nationalism, with a part of it being pulled over to the Tartan Tories of the SNP, who with their traditional middle-class nationalist support, thereby were able to obtain a majority in elections.

It is because socialists seek to build the greatest unity of workers across borders that they must stand out against such a dynamic. It is why they argue that the socialists in Spain, for example, should emphasise the right of Catalunya to separate, whilst socialists in Catalunya should emphasise the importance of remaining within Spain. Socialists could never recommend that the Catalan workers pushed their demands for independence to a point where it led to a civil war with Spain, in which not only would the Spanish and Catalan workers be turned into enemies of each other, but in which thousands of them would be likely to die. The demand for self-determination is merely a bourgeois-democratic right, which can never be placed higher than our ultimate goal, which is the building of a united working-class struggle for socialism.

But, a primary responsibility here lies with the Spanish workers. It is the Spanish state that is the opponent of the implementation of even that basic bourgeois democratic right. Unlike even the British Tory government of David Cameron, which facilitated the Scottish independence referendum, the Spanish state has prevented even a legal independence referendum taking place in Catalunya, and then in typical Catch 22 fashion, uses that as a justification for denying the legitimacy of the referendum that was held, and thereby of denying permission for separation. The argument by the Spanish state, and its media mouthpieces that Catalunya needs to undertake the process legally by changing the Spanish Constitution, to allow such a vote is farcical.

What is even more farcical, is that, as with the Scottish referendum, if Spain were to facilitate such a referendum, it would probably vote against independence. The actions of the Spanish state, in violently attacking even elderly voters, in imposing direct rule in Catalunya, in threatening to imprison the Catalunyan government representatives and so on, are almost guaranteed to win additional support for the separatist cause in Catalunya, and to drive an even deeper wedge between people in Catalunya, and between Catalunya and the rest of Spain, especially given the history of Catalunya itself, and its memories of the Franco era, and especially given the family ties between current Spanish government politicians, and the Franco regime.

The responsibility of Spanish socialists, therefore is to demand that the Spanish state stops its oppressive actions against Catalunya. They should demand that if the objection is that the referendum was not legal, then the government should facilitate such a legal vote. It should mean enabling new unfettered elections in Catalunya. Spain itself can never be free, whilst it holds Catalunya in chains.

But, the experience has wider lessons. The EU has a central role to play, but it has so far failed to take up that challenge. It once again illustrates the need for the EU to establish itself as a centralised federal state. The Catalans like the Scots have made clear that they have no desire to leave the EU. Some EU representatives have begun to send out messages that with Britain leaving the EU, they would be favourable to an independent Scotland remaining in the EU. That would mitigate some of the economic damage that independence from Britain would impose on Scotland, and would at least facilitate the Scottish working-class maintaining and building its links with the EU working-class. It makes sense for the EU to make a similar offer to Northern Ireland and Gibraltar. But, in the case of Catalunya, the EU has been adamant that it would not recognise an independent Catalunya. Why? 

The obvious solution for many of these problems, is for the EU to recognise and to embrace regional governments within Europe, in the context of a federal European state structure. The answer is not a further empowerment of the old nation state, as represented by Brexit or Scottish independence, but it being superseded by a new EU state, and the development of appropriate structures at a regional level within it.

Theories of Surplus Value, Part II, Chapter 8 - Part 63

It is only because production takes place on a large and increasing scale that the organic composition of capital can itself rise. Again, referring back to an earlier point, it was for this reason that, under capitalist production, industry could become more productive – in the second sense – than agriculture. It is only large scale production that makes it possible to introduce machinery, and increased masses of fixed capital.

“Incidentally, it is clearly only possible to have a ratio of 1 :1/6, for example, in the cotton industry, if a constant capital (this depends on the machines etc.) amounting to say £ 10,000 has been laid out, hence wages amounting to 2,000, making a total capital of 12,000. If only 6,000 were laid out, of which wages would be 1,000, then the machinery would be less productive etc. At 100 it could not be done at all.” (p 111)

But, on the other hand, as production expands, and productivity rises, the value of the machines and other fixed capital falls, and the productivity of this fixed capital itself thereby rises. One machine now does the work that two machines previously did, and so on.

“... more raw material and the same amount of labour require less machinery etc.” (p 111) 

“Then the ratio of variable to constant capital grows again, but only because the absolute [amount of] capital has grown. This is a check against the fall in the rate of profit.” (p 111)

Moreover, Marx describes the increasing amounts of laid out capital, i.e. the increasing scale of production required here to justify this increased mass of fixed capital, which brings about the rise in productivity, in the second sense, i.e. an increase in the quantity of use values produced, whilst resulting in a reduction in the amount of surplus value produced, relative to the laid out capital, i.e. a fall in the rate of profit, or profit margin.

But, the same process also means that the rate of turnover of capital rises, because it shortens the production period and circulation time. So, although the surplus value may fall relative to the laid out capital, it inevitably rises against the advanced capital, so that the annual rate of profit, and so annual average rate of profit rises.

“On the one hand, with the advance of industry, machinery becomes more effective and cheaper; hence, if only the same quantity of machinery were employed as in the past, this part of constant capital in agriculture would diminish; but the quantity of machinery grows faster than the reduction in its price, since this element is as yet little developed in agriculture.” (p 112) 

By contrast, where raw material cost increases, as a proportion of the value of industrial commodities, as productivity rises, and the proportion of labour costs fall, in agriculture, the fall in raw material prices, arising from rising productivity means that they increase as a proportion of cost to a much smaller degree.

“... raw material does not increase as a component part of the process of creating value to the same degree as it increases as a component part of the labour-process.” (p 112)

On this basis, it can be seen why landlords feared improvements in productivity that reduced agricultural prices, and so potentially rents. The same applied to the extension of land under cultivation. The same thing can be seen today in the concern of landowners to limit the amount of land available as building land, which thereby keeps land prices and property prices high.

But, Petty and D'Avenant showed that the rate of rent might decrease even as the amount of rent or rental rose. The reason is that a much greater outlay of capital is involved in bringing about the increase in supply. So, for example, a lot of capital may be employed to drain land as happened in Holland. As a consequence of this additional land being brought into cultivation, the total amount of rent collected may rise, but, as a proportion of the capital advanced that rent represents a smaller amount.

“It is also evident here, that the Englishman always regards the level of rent as rent related to capital and never to the total land in the kingdom (or to the acre in general, like Herr Rodbertus.” (p 113)

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Theories of Surplus Value, Part II, Chapter 8 - Part 62

Marx clarifies what he means by more or less productive, when it comes to comparing two different industries. As set out in Theories of Surplus Value, Part I, Chapter 4, Marx's definition of productive labour is that which produces surplus value. This is quite different to a definition of productive based on the production of value or use value. In fact, labour, which produces a large quantity of use values, in a given time, will embody less value in each use value than labour which produces a much smaller quantity of use-values. So,

“It is nonsense to talk of the greater or lesser productivity of two different branches of industry when merely comparing the values of their commodities.” (p 110)

Its possible if you take a starting point, to compare the ratio of the value of one commodity to that of another to discern how productivity in one industry has changed relative to the other, by then comparing the relation of the values of their commodities at some later date, but that does not tell you what the productivity of one is compared to the other.

What Marx really means by productivity here is the organic composition of capital, i.e. the ratio of the value of constant capital to the value of variable capital. So, to return to the earlier point, in pre-capitalist modes of production, agriculture could be more productive than industry, because in agriculture, nature replaced some labour in the production process, whereas in industry labour had to do all the work. By contrast, under capitalism, not only does the division of labour and co-operation, only possible when production is undertaken on a large scale, enable each unit of labour to process more material, but labour itself is increasingly replaced by machinery in the production process.

As described in Capital III, these machines are only introduced where the labour they require for their production (both dead and living labour, i.e. constant capital and newly created value) is less than the paid labour they replace. Consequently, their introduction is synonymous with a rise in productivity.

What Marx means by productive here then is the opposite of what he meant previously when discussing productive labour in Part I. There productive labour meant productive of surplus value. Here, a productive capital is one that produces use values, and is more productive the more use values it produces with a given quantity of labour. And, because a capital that produces a larger mass of use values, with a given quantity of labour-power thereby produces a relatively smaller mass of surplus value, the more it is less productive in that previous sense. This is indeed the basis of the contradiction at the heart of Marx's Law of the Tendency For The Rate of Profit To Fall. In other words, the more a capital becomes productive in the second sense, of producing more use values with a given mass of labour, the less productive it is in the first sense of producing surplus value, because each one of these increased mass of use values, contains proportionately less variable capital and surplus value (and proportionately less fixed capital), but proportionately more value of materials, and consequently the profit margin, p/k, or rate of profit, s/(c+v) falls.

“... (in other words, not so productive of surplus-value, because it is more productive of produce)” (p 111)

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Theories of Surplus Value, Part II, Chapter 8 - Part 61

Unfortunately, some modern economists who see the Law of the Tendency for the Rate of Profit to Fall as being the cause of crises of overproduction, also follow Ricardo in failing to make this distinction in relation to the two opposite causes of a fall in the rate of profit. They see all falls in that rate as a manifestation of the Law without investigating the actual basis of that fall.

Marx also notes here that the difference in agricultural and industrial prices cannot be explained by changes in the value of money, because any such change in the value of money would affect agricultural and industrial prices equally.

“If money fell by 50 per cent then l quarter which was previously worth £3 would now be worth £6, but 1 lb. yarn which was previously worth 1s. would now be worth 2s. The absolute rise in the money prices of agricultural products compared with industrial products can therefore never be explained by changes in [the value of] money.” (p 109)

In pre-capitalist modes of production, Marx says, agriculture could be assumed to be more productive than industry. That is because nature assists the agricultural production process. By contrast, in handicraft industry, it is human labour that must do all the work of providing energy, motive power and the mechanism of transformation of matter from one form to another. Seed grows into flax largely due to the nutrients in the soil, the rain that falls on the soil, and the sun which provides energy to the plant. But, flax is only turned into linen as a result of the spinner converting it into yarn, and then the weaver converting the yarn into linen.

“In the period of the stormy growth of capitalist production, productivity in industry develops rapidly as compared with agriculture, although its development presupposes that a significant change as between constant and variable capital has already taken place in agriculture, that is, a large number of people have been driven off the land.” (p 110)

So, during this period, industry then overtakes agriculture, in terms of productivity. For one thing, industry is itself able to harness the transformative power of nature, when production is undertaken on this larger scale. The power of water and wind provides energy to replace human and animal power to drive machines, and later steam and electric do the same.

But, as Marx pointed out earlier, this is an historical difference that can also disappear.

“Later, productivity advances in both, although at a uneven pace. But when industry reaches a certain level the disproportion must diminish, in other words, productivity in agriculture must increase relatively more rapidly than in industry. This requires: 1. The replacement of the easy-going farmer by the businessman, the farming capitalist; transformation of the husbandman into a pure wage-labourer; large-scale agriculture, i.e., with concentrated capitals. 2. In particular however: Mechanics, the really scientific basis of large-scale industry, had reached a certain degree of perfection during the eighteenth century. The development of chemistry, geology and physiology, the sciences that directly form the specific basis of agriculture rather than of industry, does not take place till the nineteenth century and especially the later decades.” (p 110)

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Theories of Surplus Value, Part II, Chapter 8 - Part 60

Marx differentiates between a situation where the rate of profit falls because of rising productivity and the alternative situation where the rate of profit is falling because of rising input costs. The former is the condition that relates to the long-term tendency of the rate of profit to fall, because rising productivity leads to a higher technical composition of capital, which becomes manifest in a higher organic composition of capital.

In other words, higher productivity means that where previously 100 units of labour processed 10,000 units of material, a technical composition of 1:100, 100 units of labour now processes 20,000 units of material, 1:200. This same rise of productivity may mean that the price of material falls, from £1 per unit to £0.75 per unit. Where previously the 100 units of labour had an exchange-value of £100, and the materials an exchange- value of £10,000 (an organic composition of 1:100) this now becomes £100 and £15,000, giving an organic composition of 1:150.

But, as Marx sets out later, in his critique of Ricardo's Theory of the Law of The Falling Rate of Profit, the rate of profit may fall, in the short term for the opposite reason. In other words, instead of rising productivity causing a higher technical composition, the organic composition may rise because of a higher value composition of capital. If 100 units of labour continue to process 10,000 units of material, as before, but the price of material rises to £1.20 per unit, the organic composition of capital will rise from 1:100 to 1: 120.

Moreover, where productivity is rising, the rate of profit may fall as the rate of surplus value rises, because the rate of surplus value rises by a smaller proportion than the mass of labour employed falls, so less surplus value itself is produced relative to the capital laid out to produce it. But, the rate of profit may again also fall for the opposite reason, which is that productivity is not rising, or is not rising fast enough to compensate for the increased demand for materials and labour-power, so that the market prices of these inputs rises.

Consequently, even as productivity rises and boom conditions exist of higher profits, those very conditions cause the demand for materials and labour-power to rise causing material prices and wages to rise. As Marx sets out in Capital III, Chapter 6, firms may not be able to pass on sharply higher material prices, and so absorb that cost out of their profits. Similarly, higher wages reduce the mass and rate of surplus value, and so also the rate of profit. These are the conditions that Marx describes in Capital III, Chapter 6, and 15, and later in Chapter 17 of Theories of Surplus Value, and elsewhere, as leading to the squeeze on profits, which results in an increased propensity for crises of overproduction. But, these are the opposite conditions to those that Marx sets out as being the basis for the Law of the Tendency for the Rate of Profit to Fall.

“Ricardo does not differentiate between these cases. Except in these cases (that is where the rate of profit, although constant, falls relatively because of the differential rents of the capital employed on the more fertile types of land or where the general ratio of constant to variable capital alters as a result of the increased productivity of industry and hence increases the excess of value of agricultural products above their average price) the rate of rent can only rise if the rate of profit falls without industry becoming more productive. This is, however, only possible if wages rise or if raw material rises in value as a result of the lower productivity of agriculture. In this case both the fall in the rate of profit and the rise in the level of rent are brought about by the same cause—the decrease in the productivity of agriculture and of the capital employed in agriculture.” (p 109)

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Brexit Baloney

It should be clear to everyone by now that Brexit is going to be a disaster. Even if we had the most competent government ever, the fact is quite simply that Britain is in a weak bargaining position, and whatever deal is arrived at will be determined by the EU, not by British politicians. The idea that has been put out by Brexit supporters that this deal could be beneficial to both Britain and the EU is baloney. By definition, the deal that is arrived at will be worse than the current situation. But, we do not have the most competent government ever. Far from it. Each day that goes by we not only see their total incompetence, but we also see the extent to which they have to lie and dissemble, both to hide from the public the true situation, and to negotiate the deep divisions within their own ranks, and to cover their own incompetence. This is a government that cannot even roll out Universal Benefit smoothly, so what chance is there they could roll out the biggest operation any peacetime government has been called upon to undertake?  The Brexit Secretary didn't even know that Czechoslovakia ceased to exist many years ago!

At the Brexit Committee meeting yesterday, David Davis said that it was possible that Parliament would only get a vote on the Brexit deal, after Britain had already left! Then a couple of hours later, May had to try to row back from that by saying that Parliament would get a vote before the March 2019 Brexit date. Then a further clarification from Davis' own department was issued. It is total chaos. Saying that Parliament will get a vote before the actual deadline date is itself meaningless, and fits with the dissembling nature of all other government statements on the issue. It is supposed to be a “meaningful vote”, but unless that meaningful vote enables Parliament to have a vote that enables MP's to make one of several decisions, it would be far from actually meaningful. MP's need to be able to decide either a) to accept the deal that has been negotiated, b) reject the deal negotiated, and send the negotiators back to try again, c) reject the deal and walk away, i.e. no deal, d) to reject the deal, and call for the Article 50 process to be dropped, or e) reject the deal, and call for an application for an extension of the Article 50 process, as allowed for within Article 50 itself.

The latter is effectively what May initially seemed to have been calling for in her Florence speech. It recognises that there is not a snowflake in hell's chance of being able to complete the negotiations within the existing time frame. The EU has already said that negotiations would have to be completed by this time next year, in order that the EU 27 would have time themselves to consider the deal, and to vote on it in their own Parliaments, before agreeing it at the Council of Ministers, and then through the European Parliament. So, Davis' comments, and the dissembling statement by May during PMQ's, is ridiculous, in saying that negotiations on the deal might continue up to March 2019.

In her Florence Speech, May moved to accept the obvious reality that any deal is going to take many years to reach, given that they have not even been able to reach a deal on the divorce settlement, let alone start the more difficult Stage 2 talks, and so adopted Labour's stance of calling for a transitional arrangement. It was quite clear what that transitional arrangement has to be. It is a period – as Labour says that is as long as is necessary to undertake those negotiations – during which the status quo, more or less continues. That is it is a period during which Britain would remain in the single market and customs union, and would, thereby have to accept everything that goes with it, such as the continuation of free movement, the continuation of the role of the ECJ, and the continuation of Britain's budget contributions. The only thing that Britain would not have, would be any MEP's, or any representation in the Council of Ministers or the Commission.

But, as soon as it was clear that this was the implication, the Tory hard Brexiters reacted, and May was then forced to back track. In the Florence Speech, May had argued that she had tried to break the logjam of negotiations by agreeing to stump up €20 billion. But, even within the context of the speech it was clear that this sum was only an agreement to pay up what Britain owes in its regular budget contributions up to 2020. It was not a divorce settlement to cover Britain's ongoing financial commitments relating to all of those EU projects and so on, over which it has made decisions that reach decades into the future. But, then May also rowed back from the concept of a transitional period, and instead put forward the idea that the period after March 2019, would be an implementation period. In other words, that requires that the deal itself must have been agreed by 2019, and only its gradual implementation is rolled out in the implementation period after that. That is simply untenable.

Firstly, the impression is being given by May that during this implementation period, Britain would be able to basically have cake and eat it. That is, it would continue to have the same access to the single market and customs union that it does now, but without having to make any budget contributions, and without having to accept the ECJ or free movement, as well, it now appears, as wanting to have the right to negotiate its own separate trade deals with other countries! There is no reason whatsoever why the EU would agree to such a deal which has no benefits of any kind for them.

May and Davis have argued that Parliament cannot have a meaningful vote until there is an actual deal to vote on. But, the fact is that no full deal, including the future trading arrangements is going to be arrived at any time within the next few years. Either, the government should own up to that truth, and act accordingly to apply to the EU for an extension of the Article 50 period, now, so that those negotiations can continue, or else, they should recognise that Parliament will actually need to have two meaningful votes. That is, Parliament should have a vote on whether or not to accept any deal that is arrived at from the Stage 1 negotiations, before proceeding to Stage 2, and should then have a vote on whether to accept the full deal, as and when it is negotiated.

If parliament does not feel that what has been negotiated over the financial settlement, EU citizen's rights, or the Irish border is acceptable, then there is no point in the government continuing to Stage 2 negotiations. In fact, that is true for the European Parliament too. Labour at Westminster, and at the European Parliament should demand a vote on any such draft deal, before agreeing to Stage 2 negotiations proceeding. Already, the Scottish and Welsh governments are highlighting the need for them to have meaningful votes, and were it sitting, it seems inevitable that the Northern Ireland Assembly would want to have a say on any deal negotiated over the border arrangements, before any further negotiations took place.

In fact, as I pointed out recently, although its politically difficult for May to get through a deal on the finances and citizen's rights due to differences in her party and Cabinet, it is technically easy to resolve those matters. If she can bludgeon the hard Brexiters – which is what Merkel was trying to push her into doing – then she can easily agree to pay up the money that the EU is demanding, and agree to arrangements that protect citizen's rights, and accepts some continuing role for the ECJ in arbitrating any future disputes in those areas. But, so long as Britain insists upon being outside the customs union, and single market, it is technically impossible to reach a solution to the Irish border, both because of the movement of goods and services, but also because of the millions of people who cross the border on a regular basis, and which would completely undermine any attempt to restrict free movement of people.  All of the Tories want to have an open border in Ireland etc., the problem is that it's impossible if Britain is outside the customs union.

Merkel threw the ball back into May's court to come up with a solution to that irreconcilable contradiction, so that when she fails to do so, by December, it will be obvious where the fault lies for the breakdown of the talks, and the Brexiters will not be able to blame it on the EU. They have made a lot about the fact that the EU 27 have agreed to start internal talks on the trade relation between the EU and Britain, but that is not surprising given that the EU will want to have a plan in place for what it will do, when Britain fails to resolve the issue of the Irish border, and when the talks, therefore, break down. The main loser when Britain crashes out of the EU will be Britain, when its planes are grounded, when it can't move radio isotopes for the NHS and so on, but it would also affect the EU, so it is inevitable that they will want to have their own plans in place for what happens then. As a $14 trillion plus economy, with more than 400 million people, and with its own trade arrangements with the rest of the world, it will be easy for the EU to make alternative arrangements for the disruption caused to its trade with Britain, but the EU, as it has all along will want to have its ducks in a row ready to go, when that situation arises, and it has to use its own airlines to replace all of the grounded British planes, and so on.

Already, we know that business is planning for that.  As Lloyd Blankfein set out, the banks are moving their operations into EU countries, and it is in any case inevitable that Frankfurt as home of the ECB will become the new financial centre of Europe, and probably the world.  Nissan have said they may move out of Derby, and many other large companies who only moved to Britain because it gave an opening into Europe, without the protections for workers that many EU countries have, and Britain lacks, will start to do the same. 

The hard Brexiters are already lining up to impose a cliff edge Brexit on Britain by the end of the year, when those talks break down, because they must also recognise that it's impossible to reconcile the contradictions over the Irish border and so on. Some of them no doubt think that they will be able to just use good old colonial era gunboat diplomacy to impose British interests on the upstart foreigners, having failed to recognise Britain's much diminished significance in the world, a diminished significance that membership of the EU was intended to address, by being able to mobilise a much greater economic, political and strategic force behind it. The result will be chaos.

Labour should demand a meaningful vote on any deal, or failure to reach a deal on the Stage 1 negotiations. That meaningful vote should not only include the right to accept or reject any deal over the financial settlement, citizen's rights and the Irish border, but should also be able to dictate the basis upon which the government enters into Stage 2 negotiations. In other words, Parliament should be able to tell the government to apply for an extension of the Article 50 period, during which negotiations over the future trading arrangement with the EU are decided. That is necessary, because it is quite clear that no such negotiations are going to be completed this time next year, which is really the deadline for the completion of negotiations so that the British, European, and EU 27 Parliaments can debate and ratify or reject any such deal. It has to be set out quite clearly that any such transitional period is precisely that, a transitional period, and not an “implementation period”, because you can only have an implementation period if there is already a deal that has been reached, and that can be implemented. It has to mean that during this “transitional period”, Britain remains a member of the EU, and retains all of the rights and responsibility of such.

But, it will become even more apparent during this period the extent to which Brexit will be a disaster. A hard Brexit will be a terrible disaster, and a so called “soft Brexit” is impossible to negotiate. Some Tories have been arguing that because a trade deal is in the EU's interests, and because Britain already has compliance with EU standards, negotiating a trade deal will be easy. That is what they said about negotiating the divorce settlement! Negotiating a settlement where both parties gain, as for example, with negotiating the Canada-EU trade deal is easier than negotiating a deal, which only aims to minimise the damage done to one or both parties. That is the situation faced by the EU and Britain. Both will lose, but Britain will lose much more. There is absolutely no reason for the EU to grant Britain a good deal, and even a good deal would necessarily be worse than the current arrangement.

It is vital that Labour create clear blue water between them and the Tories over Brexit, or as with the Scottish Independence referendum, they will be tarred with the same brush and share the same displeasure. Labour needs to now come out clearly to describe what a disaster Brexit will be, and what a dog's dinner the Tories are making of it. If there can be a suspension of the roll-out of Universal Benefit, and if people can have a cooling off period, and a right to withdraw from credit agreements, they should have the same rights in respect of Brexit, which was passed on a slim majority, and on the basis of a series of lies. Labour should come out to oppose Brexit, and to demand a new General Election to settle the issue.

On the Daily Politics on Thursday, Vernon Bogdanor, argued that such an election would not settle the issue because both parties are split down the middle. But, that is not true. Around 80% of the Labour Party supports remaining in the EU, and 66% of Labour voters voted Remain in the referendum. Moreover, Bogdanor's claim that the majority of Labour voters in the North support Leave, whilst those in the South support Remain is also false, as John Curtice has shown. There may be a majority of Leave supporters in some Northern Labour held constituencies, but that does not mean a majority of Labour voters in those constituencies support Leave either. Those Labour constituencies also comprise, Tory, UKIP, and Liberal voters. If the large majority of Tory and UKIP voters in a constituency vote Leave, along with a minority of Labour voters, it can give an overall majority for Leave, but that is not the same as a majority of Labour voters in that constituency supporting Leave.

In fact, as Curtice showed, even in the Leave voting constituencies, a majority of Labour voters still voted Remain. That would be even more likely given what Labour voters have learned about Brexit in the intervening period, and given that Corbyn's Labour is now providing a much clearer, radical social-democratic vision of what a Labour government working with European social democratic parties could achieve inside the EU. Labour should adopt a clear position of opposition to Brexit, and begin to mobilise for a new General Election on that basis.

Theories of Surplus Value, Part II, Chapter 8 - Part 59

[10. Rate of Rent and Rate of Profit. Relation Between Productivity in Agriculture and in Industry in the Different Stages of Historical Development]

Marx quotes a passage from Rodbertus that was aimed at Ricardo.

““The increase in wages, capital gain and ground-rent respectively, which arises from the increase in the value of the national product can raise neither the wages nor the capital gain of the nation, since more wages are now distributed among more workers and a greater amount of capital gain accrues to capital increased in the same proportion; ground-rent, on the other hand, must rise since this always accrues to land whose area has remained the same. It is thus possible to explain satisfactorily the great rise in land value, which is nothing other than ground-rent capitalised at the normal rate of interest, without having to resort to a fall in productivity of agricultural labour, which is diametrically opposed to the idea of the perfectibility of human society and to all agricultural and statistical facts” (pp. 160–61).” (p 106-7)

Marx notes that nowhere does Ricardo seek to explain the “great rise in land value”. Ricardo notes explicitly that with a given rate of rent, the amount of rent can increase with constant agricultural prices. All that is required is either that more land is cultivated or else more capital is employed. This is not the problem that concerned Ricardo.

“His problem lies in the rise in the rate of rent, i.e., rent in proportion to the agricultural capital advanced, and hence the rise in value not of the amount of agricultural produce, but the rise in the value, for example, of the quarter of wheat, i.e., of the same quantity of agricultural produce; in consequence of this the excess of its value over the average price increases and thereby also the excess of rent over the rate of profit.” (p 107) 

Its that which, for Ricardo, ultimately pushes up the value of labour-power and squeezes profits. It is the basis of Ricardo's theory of the law of the falling rate of profit.

“The rate of rent can indeed rise relatively to the capital advanced, in other words, the relative value of the agricultural product can rise in proportion to the industrial product, even though agriculture is constantly becoming more productive. And this can happen for two reasons.” (p 107)

Firstly, if we take the example earlier of where ever more land was brought into production, to meet additional demand, it was seen that this did not lead to a fall in agricultural prices, because the additional surplus profit, arising on the more fertile land, is appropriated as differential rent. On that basis, the rate of rent rises. But, it does not result in Ricardo's fear of rising agricultural prices either.

The rate of rent rose because additional rent was collected from these more productive capitals. Moreover, the assumption here was that as type II land came into production, type I land continued in operation. But, that is not guaranteed or even likely. Once demand has reached a level whereby it becomes worthwhile investing capital in the more productive land type II, this land may be more than capable of meeting the demand.

Take a large area of land that may be very fertile, but requires a large outlay of capital to undertake necessary drainage, or a large area of very fertile land that might be some distance from markets. Unless demand reaches a minimum amount, it may not be profitable to invest the large amount of capital required to cultivate the land. So, less fertile land, closer to existing villages may be farmed instead. But, once towns and cities develop, demand may reach a level whereby it becomes worthwhile investing that larger outlay of capital. If transport costs fall, because of the introduction of railways, for example, that may even more become the case.

In that event, the originally cultivated, less fertile land gets pushed out of production, because it can no longer compete with the new more fertile land being introduced. The originally cultivated land then gets turned over to other uses, such as for animals, or else is turned over to residential, commercial or industrial construction.

But, the consequence then of this older, less fertile land going out of cultivation is that the value of agricultural products falls. Even where this is not the case, the higher rate of rent does not cause agricultural prices to rise, because, as stated earlier, it is due to the amount of surplus profit rising, and the amount of surplus profit has risen because of this same reduction in the overall value of agricultural production, whilst the market price of those products has remained constant.

If on land type I, £1,000 of capital produced 3300 kilos of grain, at a price of £0.333 per kilo, £4,000 of capital would have produced 13,200 kilos, at the same price. The rate of rent was 10%, producing £100 of rent, which would now be £400. However, by applying this additional capital to lands II – IV, these more fertile lands may produce instead 15,000 kilos.

The average value of a kilo, therefore, has fallen, whilst the market price has remained the same, and this is the basis of the additional surplus profits, which forms the additional rent. If, in total then, rent rose to £1,000, it would represent a rate of rent of 25% compared to 10% previously, but it arises not because costs have risen, and profits thereby fallen, but the opposite.

Each capital of £1,000 employed on lands II – IV now produce proportionately more, and measured against this larger product, the rent has not risen. It only rises as a proportion of that capital, because that capital has itself produced a larger product and greater profit.

The second reason that the rate of rent may increase is because productivity in agriculture falls relative to industry, but remains constant, or rises absolutely. In other words, if productivity in agriculture remains constant, but in industry doubles, then productivity in agriculture will have fallen compared to industry. Similarly, if productivity in agriculture rises by 50%, but in industry it doubles, productivity in agriculture will still have fallen relative to industry.

“In this case the ratio of variable capital to constant capital would be decreasing in industry twice as fast as in agriculture. 

In both cases the rate of profit in industry would fall, and because it fell the rate of rent would rise. In the other instances the rate of profit does not fall absolutely (rather it remains constant) but it falls relatively to rent. It does so not because it itself is decreasing but because rent, the rate of rent in relation to the capital advanced, is rising.” (p 109)

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Theories of Surplus Value, Part II, Chapter 8 - Part 58

If agriculture became more productive, as a result of more capital intensive production, so that the difference with industry disappeared, the removal of absolute rent might of itself reduce the rate of rent. So, the rate of rent may fall, but the amount of rent may rise. If previously £2,000 of capital was invested in a hectare, with a rate of rent of 20%, it produced £400 of rent. If now £5,000 of capital is invested on a hectare of land, and the rate of rent is halved to 10%, the amount of rent rises to £500.

If production of wheat takes place on land type I, which pays only absolute ground rent, a rise in demand might cause a more fertile land II to be brought into cultivation. The price of wheat would remain the same, or else I could no longer make average profit. Now, II makes surplus profit and pays differential rent. If demand rises further, more land that is even more fertile, types III and IV might be introduced.

But, the price of wheat would not fall. The surplus profit would be absorbed by rent. Consequently, unlike industry, this more efficient production would not result in lower prices, lower food costs for workers, and a higher general rate of profit.

If production was taking place initially, only on the most fertile land, IV, production on land type III could only occur if agricultural prices rose. Only then would those prices enable capital on III to pay absolute ground-rent, whilst obtaining the average profit. Capital on land type IV would then make surplus profit, so that it began also to pay a differential rent, which absorbed it. Similarly, prices would have to rise further before production on land type II became possible. At that point, both II and III would pay differential rent. Finally, prices would have to rise again before land type I could be cultivated and pay absolute rent.

As a consequence, of this progressive move to less fertile lands, the price of food and raw materials would rise. That would cause the value of labour-power to rise, and the rate of surplus value to fall. The value of raw materials would rise, pushing up the value of constant capital, and causing a further drop in the general rate of profit.

“Under these conditions [it is again possible for] the Ricardian law [to apply]. But not necessarily, even according to his interpretation. It is merely possible in certain circumstances. In reality the movements are contradictory.” (p 105) 

For Rodbertus, rent arises from a naturally higher rate of profit in agriculture, which does not pay for the cost of raw materials. For Marx, absolute rent arises from the historical difference in the organic composition of capital between agriculture and industry, and differential rent arises on the basis of different degrees of fertility. But, the development of agriculture, science and capital can remove those differences. Agriculture could become as capital intensive as industry, and science and capital accumulation could even out the differences of fertility between different soil types etc.

“True, the difference in so far as it is merely due to variation in actual fertility of the land remains even if the absolute rent disappeared. But—quite apart from the possible ironing out of natural variations—differential rent is linked with the regulation of the market-price and therefore disappears along with the price and with capitalist production. There would remain only the fact that land of varying fertility is cultivated by social labour and, despite the difference in the amount of labour employed, labour can become more productive on all types of land. But the amount of labour used on the worse land would by no means result in more labour being paid for [the product] of the better land as now with the bourgeois. Rather would the labour saved on IV be used for the improvement of III and that saved from III for the improvement of II and finally that saved on II would be used to improve I. Thus the whole of the capital eaten up by the landowners would serve to equalise the labour used for the cultivation of the soil and to reduce the amount of labour in agriculture as a whole.” (p 105-6)

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Theories of Surplus Value, Part II, Chapter 8 - Part 57

Economically, therefore, although this appears as rent, there is no rent. The rent is only possible because it appropriates what is economically profit and/or wages.

Although absolute rent disappears where the difference between the organic composition in agriculture and industry disappears, that is not the case with differential rent. As stated earlier, differential rent is an additional rent charged by the landlord for those more fertile lands, above the worst land.

If the absolute rent is £100 per hectare, then the rent on the next best land is £100 + £x, where £x is the amount of differential rent. If absolute rent is zero, that means that this next best land may still pay a differential rent of £x, and each type of land above it will pay incrementally more differential rent, in accordance with the surplus profit it enjoys.

In other words, although the difference between the organic composition of capital, in aggregate, compared to industry, may have disappeared, so as to remove the basis of absolute rent, different agricultural capitals, as with different industrial capitals, will produce at different levels of efficiency and profitability. In both agriculture and industry, those capitals that produce at higher levels of efficiency and enjoy lower individual values for the commodity they produce, will enjoy higher rates of profit.

The difference is that, in agriculture, that higher level of productivity and profitability is locked in as a function of the fertility of the land, even where that additional fertility results from the investment of additional capital. Consequently, unlike industry, this higher level of profitability still gives rise to differential rent. The worst land now produces no surplus profit, or absolute rent, but all lands superior to it, still produce more than average profit, and this surplus provides the basis of varying degrees of differential rent.

If the organic composition of capital in agriculture was lower than industry, so that absolute rent arises, then if all land was of the same quality then only absolute rent can exist, and no differential rent. The extent of absolute rent would depend on the difference between agricultural and industrial productivity. But, even if that remained constant, the amount of rent could still increase.

If the rental is £100 per hectare, then the amount of rent will double from £1,000 p.a. to £2,000 p.a. if 20 hectares rather than 10 hectares are rented. As Marx says, in Capital III, Ricardo was wrong on this point. He believed that this additional land could only be brought into cultivation if agricultural prices, and so the rate of profit, rose. Marx points out that capitalist farmers, like every other capitalist, assume that overall demand rises because the population grows. Each capitalist seeks to increase their own production, so as to meet this additional demand, and so scoop up the additional profits.

If the demand for grain is 1 million kilos, at a price of £1 per kilo, and this is met by farmers, then if population and the demand for grain, rises by 10% to 1.1 million kilos, then if farmers face constant costs of production they can expand their production to 1.1 million kilos. Their costs and profits will both rise by 10% accordingly. So, if the cost of production previously was £0.80 per kilo with £0.20 per kilo profit, that would have been £0.8 million cost of production and £0.2 million profit, which now rises to £0.88 million cost of production and £0.22 million profit, with the price of grain remaining at £1 per kilo.

Consequently, this 10% increase in supply is achieved by a 10% increase in land cultivated, and 10% rise in capital employed. If the land previously cultivated was 1,000 hectares, and the rent on it was £100,000, it rises to 1,100 hectares and £110,000 of rent. The rental remains at £100 per hectare. The rate of profit has remained constant at 25%. The rate of rent was previously 100,000/800,000 = 1/8 = 12.5%. It is now 110,000/880,000 = 1/8 = 12.5%.

Moreover, the increase in supply might be brought about by using more capital rather than more land. If 1,000 kilos of grain is produced by £1,000 of capital on 1 hectare of land, and the rent is £100, then 2,000 kilos of grain might be produced on this same hectare of land using £2,000 of capital. As the amount of surplus profit would then be double, the rent would also be doubled to £200. However, this £200 of rent still represents the same rate of rent of 10% against the capital employed.

And, Marx points out this differential rent would continue to exist even if landed property was abolished, because of the existence of this differential rent arising from different soil fertility.

“If the state appropriated the land and capitalist production continued, then rent from II, III, IV would be paid to the state, but rent as such would remain. If landed property became people’s property then the whole basis of capitalist production would go, the foundation on which rests the confrontation of the worker by the conditions of labour as an independent force.” (p 103-4)

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Theories of Surplus Value, Part II, Chapter 8 - Part 56

So, when comparing one sphere with another, it shows lower productivity in those spheres where exchange-value exceeds average price/price of production. It means the potential of a rent being extracted, but in most spheres, that cannot happen because capital moves in to obtain the surplus profit, so market prices fall and remove the surplus profit.

But, within a sphere, it means that one or more capitals enjoy greater productivity than the average and thereby obtain surplus profits, even though there may be no surplus profit in the sphere overall, i.e. the surplus profits of some capitals in the sphere are matched by the below average profits of other capitals in that sphere.

“In the above example, I yields a rent, only because in agriculture the proportion of variable capital to constant capital is greater than in industry, i.e., more new labour has to be added to the materialised labour—and because of the existence of landed property this excess of value over average price is not levelled out by competition between capitals.” (p 100)

Rodbertus' claim that every agricultural capital that produces average profit also produces a differential rent is then wrong, Marx says, and flows from the false basis of his theory about agriculture making higher profits than industry because of not bearing the cost of raw materials. Not only is this claim about raw materials wrong, as Marx has shown, but, even were it correct, it would not matter if instead agriculture had to bear a proportionally greater cost of machinery than industry, on the same basis. But, the real basis of the surplus profit, in agriculture, compared to industry, is that the organic composition of capital is lower, in aggregate, in agriculture than it is in industry.

In industry, such a situation between spheres, whereby The Law of the Tendency for the Rate of Profit to Fall means that the rate of profit is lower in those spheres where the organic composition of capital becomes progressively higher, is resolved by competition. Capital moves to the areas where the organic composition is lower and rate of profit higher. The increased supply of commodities, in these spheres, pushes their market prices, and so profits, down to the average level.

But, in agriculture, that is prevented from happening, because of the limited supply of land, and its ownership by landlords. Capital seeking to enter agriculture must rent land from existing landlords before they can start production. Just to obtain the average profit, after paying an absolute ground rent to the landlord, the prices of agricultural products must first be high enough for the capitalist to be able to pay this rent. On any land that the capitalist is able to make more than the average profit, after paying the absolute ground-rent, the landlord will charge an additional differential rent, which swallows up the surplus profit.

The consequence is that capital can never simply move into agricultural production, as it does in other spheres, so that the supply of agricultural products rises, pushing down their market price to the price of production, because these surplus profits are never there for capital to obtain. If they were, the demand for such land from capital, would cause landlords to charge higher rents on that land. The surplus profit is then swallowed up as rent by landlord's, and so never participates in the formation of the general rate of profit.

If they did, the general rate of profit would be higher. Capital would flood into agriculture in search of this higher rate of profit, due to the value of agricultural commodities exceeding the price of production. The supply of agricultural products would rise, and prices would fall. The consequence would be lower food prices, reducing the value of labour-power, thereby raising industrial surplus value, and the rate of profit, as well as lower raw material prices, reducing the value of constant capital, and so raising the rate of profit.

“The magnitude of this general difference determines the amount and the existence of rent on No. I, the absolute, non-differential rent and hence the smallest rent. The price of wheat from I’, the newly cultivated land which does not yield a rent, is, however, not determined by the value of its own product, but by the value of I, and consequently by the average market-price of the wheat supplied by I, II, III and IV.” (p 100-101) 

In other words, as stated earlier, the lower organic composition of capital, in agriculture, in aggregate, compared to industry, in aggregate, is the basis of absolute ground rent. It means that even on the worst land, the value of its production is higher than its individual price of production, and so there is surplus profit, which is taken as absolute rent. If the organic composition of capital, in agriculture, were to rise, then the amount of the surplus profit would fall. If it were to rise so that the organic composition in agriculture was the same as in industry, this surplus profit would disappear altogether, so that absolute ground rent becomes impossible.

However, a number of qualifications have to be made here. Firstly, absolute ground-rent becomes impossible economically, but that does not mean that rent itself disappears. The landlord will still seek to obtain rent. They will do so by renting it to smaller farmers, sharecroppers, peasant producers and so on who produce obtaining less than average profit, and often where the rent itself eats into wages.

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Theories of Surplus Value, Part II, Chapter 8 - Part 55

Marx's exposition in this section is hard to follow, both because of the use of imperial measures and non-decimal currency, and because it is set out as a narrative without tables, and within the narrative, terms such as “worst previous” become indecipherable, as additional types of land are included. Fortunately, most of this exposition duplicates Marx's analysis of rent in Capital III, and I have previously set it out in extensive tables there. I will attempt to make a similar presentation here.

Marx assumes a situation where there are four types of rent producing land. Each type of land is 20% more fertile than the next, and produces 20% more rent. Land type I', does not pay differential rent, but pays absolute rent of £100.

Type	Capital £'s	Output Kilos	Rent £'s
I'	1000	1000.00	100.00
I	1000	1200.00	120.00
II	1000	1440.00	144.00
III	1000	1728.00	172.80
IV	1000	2073.60	207.36

If we take rent to actually be equal to surplus profit, we would have, assuming a 10% rate of profit, and a market value of £1.20 per kilo.

Type	Capital £'s	Output Kilos	Price of Production £'s	Value	Rent £'s
I'	1000	1000.00	1100.00	1200.00	100.00
I	1000	1200.00	1100.00	1440.00	340.00
II	1000	1440.00	1100.00	1728.00	628.00
III	1000	1728.00	1100.00	2073.60	973.60
IV	1000	2073.60	1100.00	2488.32	1388.32

The rent produced by each type of land is then not determined by its own absolute fertility but by the relative fertility. If more fertile land becomes even more fertile that reduces the rent from less fertile lands, because the surplus profit they produce falls, as the price of production falls.

“Accordingly, Storch’s law is valid here, namely, that the rent of the most fertile land determines the rent of the last land to yield any rent at all, and therefore also the difference between the land which yields the undifferentiated rent and that which yields no rent at all.” (p 99)

The other situation where the previous worst land, I, could produce rent is where the value of the product of lands I-IV is equal to the price of production of the output of the new land I', which is itself below the value of the output. In other words, wherever the value of the output of land I is greater than the price of production for I'.

“If the value is above the average price, then there is an excess profit above the average profit, hence the possibility of a rent.” (p 100)

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