[8. The Costs of Bringing Land into Cultivation. Periods of Rising and Periods of Falling Corn Prices (1641-1859)]
The kind of lumpy investment of capital referred to above is the explanation of large periods of rising agricultural prices, followed by long periods of falling prices, as shown in the average prices for the various 50 year periods, shown in the tables provided earlier. I have pointed to a similar thing in relation to primary product prices in the long wave cycle. Primary product producers also refer to this in terms of accumulation and exploitation. In other words, there can be a long period when primary product prices are high. This eventually provokes a reaction from suppliers, once they are convinced that the higher level of demand, and higher prices are permanent. This involves investment on a huge scale, to develop new mines, quarries, processing, access roads and so on. Setting all of this cost against the output means that unit costs are high. But, once all of this investment has been undertaken, no significant new investment is required. As Marx points out, mines are unlike other industries, in that the increase in their output does not involve corresponding increases in circulating constant capital, as raw materials, because the mine produces raw materials rather than processing them. Having undertaken the initial investment in fixed capital, therefore, output can be continually ramped up simply by employing more labour power, and requires only repairs and improvements to machinery. In other words, at this phase of the production cycle, the mine can become highly cash generative, as the main calls on capital have already been made, and the firm now sees its revenues steadily rise. This is then the exploitation stage, whereby the investment previously undertaken can be simply exploited to generate this cash.
A similar situation exists in the realm of communications. Huge fixed capital investment is required to build canals, railways, telephone systems, internet networks, airports and routes, and so on. But, once completed, traffic along those networks can increase substantially without any additional fixed capital investment in the network. More trains, and larger trains can travel along the same track. Faster trains can travel from one point on the track to another, in a shorter time, which means that more trains and traffic can be moved along it in the same time. The same applies with the other communications systems. The same situation applies to power grids, pipelines, sewerage and water systems, and so on.
The extent to which supply is met by simply exploiting existing fixed capital more extensively or intensively, or else to engage in some new large scale fixed capital investment plays an important role here.
“If proportionately the amount [of newly cultivated land] has greatly increased, then the rising price, and the higher price, in the early period merely shows that a large part of the costs of bringing land into cultivation enters into the additional quantity of food produced. If the price had not risen, this production [of additional food] would not have taken place. Its effect, a fall in price, can only come into evidence later, because the price of the recently created food comprises an element of the cost of production or price, that has long become extinct in the older applications of capital to land, or in the older portions of cultivated soil. The difference would be even greater if consequent upon the increased productivity of labour, the cost of appropriating soil to cultivation, had not greatly fallen, as compared to the costs of cultivation in former, bygone periods.” (p 141)
In other words, if we take land, say, in area A, which has been farmed for four centuries, it will have become more productive simply as a result of this cultivation, and the capital expended on it over that time. Stones and weeds will have been cleared, manure will have been added to the soil, roads will have been constructed that facilitate movement within the area, and from the area to markets for the produce. But the cost of building the roads and so on has long since been amortised. The only current cost in that regard is their maintenance. As Marx says, Ricardo had noted, following Anderson, that all of the manure and all the processing of the soil, over generations, had become bound to, and inseparable from, the natural fertility of that soil. Consequently, when demand for agricultural products rises, and cannot be met by production in area A, prices rise, and it brings forth production in area B. The soil in area B maybe naturally more fertile than in A, but does not currently benefit from all the processing that A has received. Before the natural fertility of B can be enjoyed, it requires large amounts of capital invested to clear stones and weeds, and possibly trees etc.; it requires fences and hedges constructing, drainage ditches digging, roads constructing, storage facilities, barns and so on building. The cost of all this investment currently may be much less, in real terms, than it was when that first investment was undertaken in area A, but the fact remains that such investment is not now required in A, but in B it is, and that investment imposes costs on the new production. Only when that large scale investment has been undertaken, and written down, does the new production, arising from it, appear as lower cost production, with a consequent effect on average prices. That is why, over 50 year periods, when such large scale investment had been completed, average prices began to fall.
Marx sets out that analysis from the tables presented earlier, taking into consideration the outliers, where prices were inflated due to a depreciation of the currency (1809 – 13), or else were high as a consequence of bad harvests (1800 – 01).
The additional costs of bringing the new land into cultivation must be borne by the product of that land. That means that prices must be high enough to justify the cost. There are only two cases where that does not apply, Marx says. Where, the product of that land is sold below its individual value, in which case it produces below average profit, and can bear no rent, or else the new land is so fertile that its individual value is below the price of production of the output of previously cultivated land. In other words, it can absorb all of this additional initial cost, and still undercut the previous production.
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