[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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