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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