[2. The Connection Between Ricardo’s Theory of Rent and His Explanation of Cost-Prices]
Marx wants to investigate the relation between rent and prices of production. To do this, he says, its necessary to ignore differential rent, and to focus on the basis of absolute rent. Of course, Ricardo denies the existence of absolute rent, and this denial flows from his identification of prices of production and values. If such an identity exists, then Ricardo is quite right to deny the possibility of absolute rent, because, if a commodity sold at its value, it could not pay a rent, and if the price includes such a rent, it would have to be selling above its value, and its price of production, thereby demolishing the Labour Theory of Value.
In every sphere whether in agriculture or industry, Marx says, the value of commodities is not determined by the labour-time embodied within them. Rather, it is determined by the average socially necessary labour-time required for their reproduction. That means that some commodities, in each sphere, will have embodied more abstract labour-time in their production, and some less than this average socially necessary labour-time. Some will have an individual value higher than the social value/market value, and some a lower individual value. But, they will all sell at the market value, or at least market prices that revolve around it. In that case, those producers whose output has a higher individual value, will sell at prices that do not realise all of that value, and so surplus value. Similarly, those producers whose output has a lower individual value will make surplus profits.
“Manufacture and agriculture only differ from one another here in that in the one, the excess profits fall into the pocket of the capitalist himself, whereas in the other they are pocketed by the landowner, and furthermore, that in the former they are fluid, they are not lasting, are made by this capitalist or that, and always disappear again, while in the latter they become fixed because of their enduring (at least for a long period) natural basis in the variations in the land.” (p 241)
But, the question is, under what condition an absolute rent exists, and if it does, what does that mean for Ricardo's theory of cost-prices. If Ricardo's assumption that commodity values equal their cost-price/price of production is dropped, then it becomes obvious that an absolute rent is possible. If the value of agricultural products/wheat is higher than the price of production, then the capitalist farmer can sell at a price that enables them to make the average profit, and also to pay an absolute rent equal to the difference between the price of production and the value of the commodity. And, we know that the price of production, in some spheres, is lower than the value of the commodity, just as in other spheres the value of the commodity is lower than its price of production. Wherever the organic composition of capital is lower than the average, or the rate of turnover of capital is higher than the average, the price of production will be lower than the value of the commodity, and vice versa.
The difference between the price of production and the value of the commodity forms a surplus profit. But, normally, this surplus profit would be competed away. Additional capital would invested in this sphere, in search of the surplus profit. The supply of commodities would then rise, and their market price would fall until it reached the price of production, at which point only the average profit is made. So, the question is why it is that this competition does not occur in agriculture; and why the surplus profit is then appropriated as absolute rent by the landlord.
“The question already contains the answer. Because, according to the presupposition, this can only happen in so far as the competition between capitals is able to effect such an equalisation, and this in turn can only occur to the extent that all the conditions of production are either directly created by capital or are equally—elementally—at its disposal as if it had created them. With land this is not the case, because landed property exists and capitalist production starts its career on the presupposition of landed property, which is not its own creation, but which was already there before it. The mere existence of landed property thus answers the question. All that capital can do is to subject agriculture to the conditions of capitalist production. But it cannot deprive landed property of its hold on that part of the agricultural product which capital could appropriate—not through its own action—but only on the assumption of the non-existence of landed property.” (p 243)
As I have said previously, in relation to Marx’s analysis of rent in Capital III, I am not convinced by his argument. If his argument is correct then, as he says, absolute rent is only possible if the organic composition of capital is lower than average.
“The same chain of reasoning which demonstrates the possibility of the existence of absolute rent, shows its reality, its existence, as a purely historical fact, which belongs to a certain stage of development of agriculture and which may disappear at a higher stage.” (p 244)
But, firstly, Marx has failed to take into consideration another factor here, which is the average rate of turnover of agricultural capital. As he has set out previously, if the rate of turnover of capital is higher than the average, this will mean that the price of production is higher than the value. In agriculture, it might be the case that the rate of turnover of some capital is higher than the average. For example, milk is sent to market every day. Other products such as butter, cheese and eggs – in less developed capitalist economies prior to these being produced by large scale industry – are sent to market on a frequent basis. But, crops, by their nature, require several months before they can be harvested, cattle take several years before they are ready for slaughter. Consequently, the rate of turnover of agricultural capital will tend to be lower than that for industrial capital.
Even in so far as the organic composition of capital in agriculture is lower than the average, and so setting the price of production below value, therefore, this might be offset by the lower rate of turnover, which has the opposite effect. But, as Marx says, its not clear that the historically lower level of productivity in agriculture had to continue. In fact, modern industrial agriculture uses large amounts of technologically advanced fixed capital, and relatively little variable-capital. Only around 2% of the population in advanced economies are employed in agriculture, and yet agricultural production is many, many times what it was 100 years ago, and food prices have continued to fall at a significant pace.
But, none of that has resulted in landowners ceasing to levy absolute rents. Marx's argument is premised on the assumption that an agricultural capital will not rent land, and engage in production unless it can make average profit, and pay the absolute rent. That requires that agricultural prices be high enough for that to occur. However, I see no reason why a capitalist farmer will not rent such land, even if they do not make the average profit, after having paid the absolute rent. That is no different from the fact that a capitalist shirt producer, who is less efficient than the average producer, in that industry, continues in business even though they make below average profits.
Ricardo, however, denies the possibility of absolute rent, because he assumes that the organic composition of capital is the same in agriculture as in industry. But, he also posits differential rent as arising from an absolute decrease in agricultural productivity, arising from the progressive resort to less fertile soils. Anderson had rejected such an idea. Anderson showed that differential rent arises from relative differences in fertility. If land type A produces 10 kilos of wheat, and land type B 20 kilos, then if land type A provides the average rate of profit, and no differential rent, land type B will pay rent. If productivity rises and land A produces 20 kilos, and B 40 kilos, and assuming demand rises so as to consume all of this production, B will still pay the same differential rent, because its fertility still has the same relation to A as before.
Ricardo, therefore, falls into a two-fold error.
“On the one hand, he assumes that the productivity of labour in agriculture is absolutely the same as in industry, thus denying a purely historical difference in their actual stage of development. On the other hand, he assumes an absolute decrease in the productivity of agriculture and regards this as its law of development. He does the one in order to make cost-price on the worst land equal value and he does the other in order to explain the differences between the cost-prices [of the products] of the better kinds of land and their values. The whole blunder originates in the confusion of cost-price with value.” (p 244)
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