“If the difference between the inherent value [of its product] and the market-price settled by the value of the cultivated soil is such, that it amounted for instance to 5 per cent and if on the other hand the interest, entering into its costs of production on the part of the capital employed to bring it up to the level of productive ability common to the old soils, amounted also to 5 per cent, then the newly cultivated land would grow produce, which at the old market-price would he able to pay the usual wages, profits and rents.” (p 142)
The reason this is puzzling, is because in Capital III, Marx had criticised Proudhon for the idea that interest represents a cost of production, which adds to the value of the commodity, rather than being, as with a rent, merely a portion of surplus value. The basis of this interest, as set out by Marx, is that it forms a part of the rent. It does so, because it derives from the higher fertility of the land, which has resulted from capital investment.
“But this part of productivity involves costs of production which are repaid as interest on the fixed capital which has been sunk into the land. This part of rent is merely interest on the fixed capital tied up in the land. Hence it enters into the costs of production of the product of the previously cultivated land.” (p 140)
In this context, it is less puzzling, because, if we consider Marx's argument in relation to absolute rent, it is that land is not brought into cultivation unless market prices are high enough to be able to provide the average profit, after the absolute rent is deducted. It is not the absolute rent, as a cost of production, which raises the value of the commodity, but the value of the commodity which is high enough to enable the payment of the rent. Yet, from the perspective of the farmer, the rent does appear as a cost of production. The same is true in respect of interest. The interest does not increase the value of the commodity, but it does not go into the profit of the capitalist. It appears as a cost they must pay for the money capital advanced. As Marx sets out in Capital III, even where the capitalist provides this money capital themselves rather than borrowing it, they see it in these terms, because they take into consideration the interest that they could have obtained on that money capital had they thrown it into the money market.
What the capitalist farmer confronts here is what appears as a payment of rent, but is, in fact, a payment both of rent and interest. Rent on the natural fertility of the land they lease, and interest on the fixed capital sunk into the land, in order to raise it to the required level for cultivation. Either way, on the basis of Marx's theory of absolute and differential rent, the value of the agricultural product must be such that the farmer can still make the average profit, after these rent and interest payments are covered.
“If the interest of the capital employed amounted to 4 per cent only while its degree of fertility exceeded 4 per cent, as compared to the older soils, the market-price, after the deduction of the 4 per cent interest for the capital employed to bring the new land into a ‘cultivable” state would leave a surplus, or it might be sold at a lower price than the market-price settled by the value of the least fruitful soil. Rents consequently would generally be lowered, together with the market-price of the produce.” (p 142)
In other words, suppose the farmer is also the landowner. They obtain a loan at four per cent per annum interest to undertake large scale fixed capital investment on the land. As a result of this investment, the output of this land rises to 10,000 kilos per hectare, as opposed to 9,000 kilos per hectare, on the previously cultivated soils. The output from this land would then create a surplus profit of around 11 percent compared to the previous soils, which would be greater than the four per cent of additional costs it endures as interest payments. So, it is worthwhile the farmer borrowing the money and making the investment. If the additional supply arising from it were significant this lower cost reduction would act to lower the overall value of production, and the price of production. As a consequence, market prices would also fall, and the surplus profits, previously enjoyed, by the older cultivated lands, would fall, causing rents to also fall.
“Absolute rent is the excess of value over the average price of raw produce. Differential rent is the excess of the market-price of the produce grown on favoured soils over the value of their own produce. (p 142)
As discussed earlier, in relation to mines, after a large amount of fixed capital investment has being undertaken, increases in output can be achieved with little or no additional fixed capital investment. In an area where roads and other infrastructure has been put in place, additional fields can be brought into cultivation at little additional cost. As the fixed costs are then spread over a larger volume of output, and variable costs tend to fall, the marginal cost of production falls. So long as any increase in demand can be met by simply expanding production in these areas, therefore, so the value of output tends to fall. Whether that situation predominates, or whether new demand causes prices and rents to rise, depends on the extent that this additional demand has to be met by bringing new areas into production, that requires this large scale fixed capital investment, and the proportion of total output it constitutes.
“If the relative quantity of the newly cultivated soil is different in different periods, then even a constant or rising price does not prove that the new soil is unfertile or yields less produce, but only that an element of cost, which has become extinct in the old cultivated soils enters into the value of the products of the newly cultivated land. This new element of cost moreover remains, although under the new conditions of production, the costs of bringing new soil into cultivation have fallen considerably, compared with the costs of bringing the old soil from its original, natural state of fertility to its present state. It is therefore necessary to establish the relative proportion of enclosures during the different periods. (p 143)
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Forward To Part 11
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