Theories of Surplus Value, Part II, Chapter 12 - Part 11

[b) The Connection Between Ricardo’s Theory of Rent and the Conception of Falling Productivity in Agriculture. Changes in the Rate of Absolute Rent and Their Relation to the Changes in the Rate of Profit]

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

Ricardo starts from an underlying assumption of diminishing returns, so that increasing levels of demand are satisfied by new supply that is less productive, and which thereby creates a higher market value. He starts from Mine III, and assumes that, as demand rises, it is satisfied by the higher valued production, first of Mine II, and then of Mine I. His argument is is that Mine I then determines the market value, because the total demand cannot be satisfied without its production, and its production is only forthcoming at a market value that enables the average profit.

But, Marx points out that this is true in the other direction. If total demand is 60 tons and is met by Mine I, at a market value of £2 per ton, if demand rises to 125 tons, and the additional 65 tons is provided by the more productive Mine II, the 60 tons production of Mine I is still required, and it still will not provide it unless it can sell at £2 per ton, so as to make average profit.

“Table A thus shows us the incorrectness of the Ricardian concept that differential rent depends on the diminishing productivity of labour, on the movement from the more productive mine or land to the less productive. It is just as compatible with the reverse process and hence with the growing productivity of labour. Whether the one or the other takes place has nothing to do with the nature and existence of differential rent but is a historical question.” (p 273) 

In other words, it will depend on where people settled and began production, and where they expanded to. The consequence is that sometimes this expansion will be into lands that are more fertile and productive, and sometimes it will be into lands that are less fertile. The determining factor will be the total demand that must be satisfied. So, if demand is 200 tons, at a market value of £2 per ton, a fall in demand – shift of the demand curve to the left – might mean that there is only demand for 140 tons at £2 per ton. All of this demand could be met by Mine II and III. Mine I's production is no longer required, but with the demand now being satisfied by their output, which has a lower value, the market value itself falls.

Similarly, if Mine IV opens, so that supply rises and all of the 200 tons of demand can be satisfied without the production of Mine I, its higher value output drops out, and the market value itself falls. It may be that as demand rises, this prompts new supply that has a lower value, and is sufficiently large as to also push out the less productive Mine I. For example, if demand rises to 220 tons, and new Mine IV opens up, producing 80 tons, it will be able to replace Mine I's higher cost production, and meet the additional 20 tons of demand. But, with Mine I's higher value production taken out, the market value will fall rather than rise, as a consequence of this rise in demand. In fact, as Marx says, in industry, this is generally the case. Capitalists do not introduce less productive machines or techniques, and frequently it is only when demand expands beyond certain levels that new large-scale investment in additional or newer types of   fixed capital become justified, and these new investments then reduce the costs of production significantly.

“Table A thus reveals to us from the outset the falseness of this fundamental assumption of Ricardo’s, which, as Anderson shows, was not required, even on the basis of a wrong conception of absolute rent.” (p 274)

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