Theories of Surplus Value, Part II, Chapter 12 - Part 12

Table A

Class	C Capital £'s	T Output Tons	TV Total Value £'s	MV Market-Value £'s Per Ton	IV Individual Value £'s per Ton	DV Differential Value £'s per Ton	CP Cost-Price (price of production) £'s per ton	AR Absolute Rent £'s	DR Differential Rent £'s	AR in T Absolute Rent in Tons	DR in T Differential Rent in Tons	TR Total Rent £'s	TR in T Total Rent in Tons
I	100	60	120	2.00	2.00	0	1.833	10	0	5	0	10	5
II	100	65	130	2.00	1.846	0.153	1.692	10	10	5	5	20	10
III	100	75	150	2.00	1.600	0.400	1.466	10	30	5	15	40	20
Total	300	200	400					30	40	15	20	70	35

If production starts in the most productive mine, Mine III, it will sell its output at its value of £120, which for 75 tons is £1.60 per ton. When demand rises, and Mine II's output is required, the value of its output is equally £120, but for its 65 tons comes to £1.846 per ton. At £1.60 per ton Mine III previously paid an absolute rent of £10, but now at £1.846 per ton, it makes an additional profit of £0.246 per ton, which it pays as differential rent, of £18.45, whilst Mine II pays only the absolute rent of £10.

If demand rises further, so that the 60 tons of Mine I is required, in order for it to pay the absolute rent of £10, the price per ton must rise to £2. At this price, Mine II also now pays differential rent, whilst Mine III's differential rent rises to £0.40 per ton.

The difference between a movement from the least fertile mine/land to the most fertile, as opposed to the movement in the other direction is this. When the movement is from the least fertile land, the market value determined by its production does not change as the more fertile lands/mines are introduced. That is for the reason stated earlier that the output of the least fertile land/mine is still needed, and is only provided at this original market value. However, when production begins first on the most fertile land, it is its production that determines the market value. As demand rises, and less fertile land needs to be brought into production, they will only do so on the basis of a higher market value, so as to make average profit.

In other words, the first movement already starts with a high market value, which does not fall as additional supply is introduced to meet this higher demand. But, the second movement starts with the lower market value that must rise as less efficient production is introduced to meet the higher demand. This has other consequences where the commodities being produced are also wage goods. Assuming that the starting point is the most fertile land, the market value of output – for coal, oil, food etc. will be lower. That means that as demand rises, and less fertile land is introduced, the market value rises. That means the price workers pay for these wage goods rises, the value of labour-power rises, and as wages rise, so the rate of surplus value, and consequently profits and the rate of profit is squeezed.

As will be seen later in Chapter 17, this forms the basis of Ricardo's theory of the falling rate of profit. He believes that even as productivity in industry rises, so as to reduce the price of manufactured wage goods, it is outweighed by this continual rise in the price of agricultural products, and rents. Its what makes the law of falling profits so important for Ricardo and Malthus, and the other bourgeois economists, because they see an implication in it that ultimately profits themselves must fall, bringing the entire capitalist system down.

Marx demonstrates that this theory of a falling rate of profit is wrong, and that it also does not imply such an ultimate fall in the mass of profits, or the catastrophe that implied. In fact, Marx demonstrates that the real basis for a law of the tendency for the rate of profit to fall, on the contrary, necessitates a growing mass of profit, and of capital.

But, the changes in the average rate of profit also have implications for the level of absolute rent.

“The rate of profit became lower with the appearance of II and finally sank to 10 per cent, as the lowest level, when I appeared. In this case therefore one would have to assume that (regardless of the data) for instance the rate of profit was 12 per cent when only III was being worked; that it sank to 11 per cent when II came into play and finally to 10 per cent when I entered into it. In this case the absolute rent would have been £8 with III because the cost-price would have been £112; it would have become £9 as soon as II came into play because now the cost-price would have been £111 and it would finally have been raised to £10 because the cost-price would have fallen to £110. Here then a change in the rate of absolute rent itself would have taken place and this in inverse ratio to the change in the rate of profit. The rate of rent would have progressively grown because the rate of profit had progressively fallen. The latter would, however, have fallen because of the decreasing productivity of labour in the mines, in agriculture, etc. and the corresponding increase in the price of the means of subsistence and auxiliary materials.” (p 275)

The essential difference between the catastrophist/Ricardian/Malthusian theory of the falling rate of profit, and the Marxist theory is also exposed here. The former is based upon a falling level of productivity that results in higher wages and a profits squeeze; the latter is based on rising productivity that results in an expanded mass of profits that is spread across a massively increased quantity of use values, so that the profit per unit of output (profit margin) falls.

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