The significance of the difference between the individual value and the individual price of production is revealed in the case of rent. Generally, the difference is removed by competition, but, in the case of rent, the operation of that competition is thwarted. In the case of each mine, where £100 of capital is employed, the individual value of the production is £120, irrespective of the quantity of output. If the rate of profit is 10%, then, similarly, the price of production of that output, in each case is £110, irrespective of the quantity of output. That means that, in each case, the capital makes a surplus profit of £10, which is 10% of the capital employed, and 8.5% of the value of output. The £10 constitutes the Absolute Rent, because it is quite clearly not a consequence of different degrees of productivity in one mine compared to another, as is the case with differential rent . This absolute rent derives from the different organic composition of capital , in this sphere, compared to the average in industry.
“All that the competition between capitals can bring about, is that the cost-price of the commodities which a capitalist can produce with £100 in coal-mining, this particular sphere of production, is equal to £110. But competition cannot compel the capitalist to sell the product at £110 which is worth £120—although such compulsion exists in other industries. Because the landlord steps in and lays his hands on the £10. Hence I call this rent the absolute rent. Accordingly it always remains the same in the table, however the fertility of the coal-mines and hence the productivity of labour may change.” (p 267)
Each capital will then pay £10 of absolute rent, but, because each capital produces varying quantities of coal, this £10 of rent will constitute a larger or smaller portion of the individual value per ton for each mine. For example, it will constitute a 60th. Of the value of a ton, or £0.166 per ton, where a mine produces 60 tons, but only a 90th., or £0.111 per ton, where the mine produces 90 tons.
“But competition establishes one market-value for these products, which have varying individual values. This market-value itself can never be greater than the individual value of the product of the least fertile class. If it were higher, then this would only show that the market-price stood above the market-value. But the market-value must represent real value. As regards products of separate classes, it is quite possible, that their [individual] value is above or below the market-value.” (p 268)
It is this difference that constitutes the differential value .
“As regards products of separate classes, it is quite possible, that their [individual] value is above or below the market-value. If it is above the market-value, the difference between the market-value and their cost-price is smaller than the difference between their individual value and their cost-price.” (p 268)
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