Ricardo assumes that there is no absolute rent. There are only two situations where it becomes normal for there to be no absolute rent. Either the organic composition of capital in agriculture must be at least as high as in the rest of industry, or else there must be oversupply of agricultural products so that the price falls to such a level that the least efficient producer sells at a price so far below the individual value that it wipes out the absolute rent.
In the first case, if the organic composition of capital in both agriculture and industry is say 80 c + 20 v, then the value of output, and price of production of the output would be 80 + 20 + 10 = 110. The value and the price of production would be the same, and so no basis for absolute rent would exist. That does not mean that differential rent would not exist. Some mines, farms etc. would continue to be more productive, so the individual value of their output would be below the market value of output for the sector, thereby giving rise to a differential rent.
That situation did not exist, Marx says. But, what did exist, the relatively lower productivity of agriculture, was not what Ricardo assumed, which was a progressive absolute decline in agricultural productivity. In other words, that as less fertile land, mines etc. are introduced, the productivity in these new lands must be lower.
Ricardo assumed that the organic composition in gold and silver production was equal to the average. As seen previously, Ricardo defined this composition in terms of the relation of the fixed to circulating capital, not the constant to variable capital. Ricardo assumes that additional capital is only invested if the rise in demand causes a rise in market values. But, as Marx also sets out in Capital III, its incomprehensible why this should be necessary. Farmers do not cultivate more land, only because agricultural prices and profits rise, any more than a yarn producer only produces more yarn because yarn or textile prices are higher. Both, Marx says, expand their production in the expectation that demand for their products will be higher this year than last year.
“The mere existence of differential rent already proves that an additional supply is possible, without altering the given market-value. For IV or III or II would yield no differential rents if they did not sell at the market-value of I, however this may have been determined, that is, if they did not sell at a market-value which is determined independently of the absolute amount of their supply.” (p 300)
Consequently, if the market value remains constant, the very expansion of the market means that the producers, in satisfying that additional demand, will thereby expand their own mass of profits.
The only other situation whereby it becomes normal for there to be no absolute rent is where there is a perpetual oversupply of agricultural products which causes market prices to fall to the level of the individual price of production of the least productive capital. Under those conditions of oversupply, the more efficient producers would continue to push market prices down until demand was sufficient to ensure that they could dispose of all of their output. Again, that does not mean that these producers do not make surplus profit or pay differential rent. The individual value of their output continues to be below the market value, thereby producing surplus profit.
“If Ricardo assumes that this cannot be the case with I, then it is only because he presupposes the impossibility of absolute rent, and the latter, because he presupposes the identity of value and cost-price.” (p 300)
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