[9. Differential Rent and Absolute Rent in Their Reciprocal Relationship. Rent as an Historical Category. Smith’s and Ricardo’s Method of Research]
Differential Rent divides into two types.
“So far as the difference in rents is concerned, provided equal capital is invested in land areas of equal size, it is due to the difference in natural fertility, in the first place, specifically with regard to those products which supply bread, the chief nutriment; provided the land is of equal size and fertility, differences in rent arise from unequal capital investment.” (p 95)
Differential Rent I, arising from relative soil fertility, affects not just the amount of rent, but also the rate of rent, i.e. the rent as a proportion of the advanced capital. Differential Rent II only affects the amount of rent, the rate of rent staying the same.
In other words, a hectare of land on which £1,000 of capital is invested may produce £100 of rent. If £200 is invested the rent rises to £200, but the rate of rent remains 10%. The effect of these additional investments of capital will then vary dependent upon whether the marginal productivity of capital is rising, constant or falling.
“The existence of different excess profits or different rents on land of varying fertility does not distinguish agriculture from industry. What does distinguish it is that those excess profits in agriculture become permanent fixtures, because here they rest on a natural basis (which, it is true, can be to some extent levelled out).” (p 95)
In agriculture, the need to meet demand by bringing into cultivation less fertile land, means that existing more fertile land thereby produces surplus profits. But, Marx argues, in industry, it is never the case that new production is introduced, which is less efficient. Of course, the basis of the neoclassical, marginalist analysis is precisely the opposite. It is that production is always being undertaken on the most efficient basis, and that any additional supply requires production to take place on the basis of rising marginal costs, which is the basis for the supply curve rising from left to right.
In fact, all experience supports Marx's position that firms never introduce a new machine or technique on the basis of it being less efficient or more expensive than an existing machine or technique, and so all expansion, all new production enjoys falling, not rising marginal costs of production.
But, this also applies in agriculture, as Ricardo admits. Ricardo does not argue that agricultural productivity falls absolutely, but that it falls relatively, compared to industry. Its possible for more fertile land, such as the North American prairies to be brought into cultivation, for more efficient machinery to be introduced, and for new developments to raise natural fertility of the soil.
These more fertile lands, when brought into cultivation, later, may even throw some of the older, previously more fertile lands out of production. The farmers on these lands then have to turn them over to other agricultural products, or other types of industry.
“The fact that the differences in rents (excess profits) become more or less fixed distinguishes agriculture from industry. But the fact that the market-price is determined by the average conditions of production, thus raising the price of the product which is below this average, above its price and even above its value, this fact by no means arises from the land, but from competition, from capitalist production. Hence this is not a law of nature, but a social law.” (p 96)
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