“In these circumstances an absolute rent will exist, even if only IV or III or II or I are cultivated. Capital can only win new ground in that solely existing class [of land] by paying rent, that is, by selling the agricultural product at its value.” (p 303)
I believe that this is true, but Marx then does not deal with the obvious contradiction here of what that implies when the value is less than the price of production. In other words, if agriculture/primary production becomes more capital intensive than industrial production, the organic composition of capital in agriculture/primary production would rise above the average.
If the average composition of capital is c 50 + v 50 + s 25 = 125, and in primary production it is c 60 + v 40 + s 20 = 120, primary production, would make less than the average profit of 22.5%, rather than producing a surplus profit out of which the rent could be paid. Capital would migrate from primary production to industrial production, until prices settled at the price of production of 122.5. However, at this price, primary production would still not produce any surplus profit, out of which to pay the absolute rent.
What is the answer to this contradiction? Quite simply it is that capital will only enter primary production when prices are at a sufficient level as to ensure a surplus profit out of which the absolute rent can be paid. In other words, landed property will demand an absolute rent, and although, like interest, this adds nothing to the value of output, it is a cost of production, which must be borne out of surplus value. If total surplus value is 45, and absolute rent is 15, then the surplus value available as profit is 30, giving an average rate of profit of 15%. Industrial products would then sell at £115, rather than £125, whilst primary products would sell at £130 rather than £120. Primary producers would pay £15 in absolute rent, leaving them with £15 profit, and thereby obtaining the average rate of profit.
The problem here then becomes what determines the absolute rent, as £15, rather than £10 or £20, or £5? So long as the assumption is that primary production has a lower than average organic composition of capital, and so produces surplus profit, the answer is simple, the absolute rent is equal to this surplus profit. However, once that assumption is dropped, the objective basis for absolute rent disappears. Marx has dealt with this kind of question previously, explaining the difference between the economic basis of rent, as opposed to the actual rent charged by landlords, as lease-rent, which may in actual fact, eat into what economically is normal profit, or even wages.
In reality, this is no different to the situation with the determination of the rate of interest, on the basis of the supply and demand for money-capital. Capital, like land, has no value, because it is not the product of labour. Yet, capital like land, has a price because both are use values that become commodities that are bought and sold. In general, the owners of land or capital will not give away the use value they own for free, whilst the buyers of these use values will not pay a higher price for them than would still allow them to produce the average profit of enterprise. If the rate of profit is high, this will cause the demand for capital and land to rise. If the supply of capital and land remains the same, the result will be that the rate of interest and rate of rent will rise. A higher rate of interest and rent will encourage more capital and land to be supplied, whilst acting to dampen demand.
If the rate of interest or rent rises beyond a certain point, owners of these use values will be led to increase their supply, whilst productive-capitalists, seeing the rate of profit of enterprise fall, will reduce their demand, causing supply to exceed demand and the rate of interest and rent to fall. Productive-capitalists, for example, may liquidate their own real capital, and use the proceeds to buy bonds or shares, or land to rent out. Similarly, as Marx points out in Capital III, in relation to the rate of interest, if too much money-capital is supplied it becomes depreciated, and the rate of interest falls. The owners of money-capital then turn themselves into productive-capitalists.
“It would be still more absurd to presume that capital would yield interest on the basis of capitalist production without performing any productive function, i.e., without creating surplus-value, of which interest is just a part; that the capitalist mode of production would run its course without capitalist production. If an untowardly large section of capitalists were to convert their capital into money-capital, the result would be a frightful depreciation of money-capital and a frightful fall in the rate of interest; many would at once face the impossibility of living on their interest, and would hence be compelled to reconvert into industrial capitalists.”
(Capital III, Chapter 23, p 378)
The same applies to rents. If the supply of agricultural and primary products is such that their prices only provide the average rate of profit, so that not even absolute rent is possible, or even just very low levels of rent, landowners will stop renting out their land. They will either become productive-capitalists themselves, or they will utilise the land for other purposes, or even just leave it derelict, as Marx describes, and as Cahill described in the New Statesman article cited earlier. At times when landowners are more concerned to obtain capital gains from rises in land prices than to obtain rents, as has been seen with much of the property development in London, the incentive to simply keep such land and property unused, is that much greater.
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