## Saturday, 10 February 2018

### Theories of Surplus Value, Part II, Chapter 13 - Part 6

It does not matter whether a differential rent is pocketed by the farmer or the landlord, because the differential rent only arises because the individual value of output from that land is lower than the market value. Differential rent does not stand as an obstacle in the way of additional capital investment, but that is not the case with absolute rent. As Marx sets out in Capital III, the imposition of rent does not cause prices to rise, by imposing an additional value to the value of the commodity, but absolute rent does lead to higher prices, because it means that land will only be cultivated when market prices of agricultural products are high enough to pay this absolute rent and still provide the average rate of profit. In other words, it causes prices to be higher by artificially restricting supply, and preventing the investment of capital.

The basis of the absolute rent is the lower organic composition of capital in agriculture relative to industry. As described earlier, there are two factors which determine whether the rate of profit (here actually to be understood as the annual rate of profit s/C, rather than the rate of profit/profit margin, s/(c+v), or p/k) is higher or lower than the average or general annual rate of profit. One determinant is the organic composition of capital. Where it is lower than the average, the annual rate of profit will be higher than the average, and vice versa. The other determinant is the rate of turnover of capital. Where it is higher than the average, the annual rate of profit will be higher than the average, and vice versa.

In industry, this is resolved by capital moving into the higher profit spheres. That raises supply of commodities in that sphere, until their market prices fall to their price of production, so that only the general annual rate of profit is being obtained. That would also happen, for example, in the colonies, where there was an abundance of land and no landed property. Capital would enter agricultural production where the rate of profit was higher, due to the relatively low organic composition of capital. It would increase the supply of agricultural products, pushing their prices down until they reached their price of production.

Marx gives the following example:

Industry

c 80 + v 20 + s 10 = 110, r` = 10%

Agriculture

c 60 + v 40 + s 20 = 120, r` = 20%

If capital could move freely, it would move into agriculture where the rate of profit is double that in industry. The overall average rate of profit is 15%, so capital would continue to enter agriculture until the increased supply of agricultural commodities forced their price down from 120 to 115. By the same token, the supply of industrial products would fall, causing their price to rise from 110 to 115. However, the existence of landed property prevents this. The landowner says to the farmer, “If your capital was invested in industry, you would make 10% profit. I am prepared to allow you to make that same rate of profit, but I want the difference between that and your actual profit as rent.”

On that basis, the landlord levies a rent of 10. In order for farmers to pay this rent and make average profit, they must continue to sell their output at its value of 120. The farmer takes 10 of profit, and the landlord 10 as absolute rent. However, this is only possible if agricultural prices are sustainable at 120, and that means that the supply must be restricted so that prices remain at that level. At the same time, this restriction of the investment of capital in agriculture means that capital does not migrate from industry. That means industrial production remains high, preventing industrial prices from rising. A free movement of capital would have meant the general annual rate of profit was 15%. Industrial prices would rise from 110 to 115, and agricultural prices fall from 120 to 115. However, now industrial capital only produces 10% profit and agricultural capital also only produces 10% profit. The general annual rate of profit is then 10%, not 15%, whilst 10% is drained from surplus value as absolute rent.

“It would, indeed, benefit the farmers if the differential rent were “relinquished by landlords”. The relinquishment of absolute rent, on the other hand, would reduce the price of agricultural products and increase that of industrial products to the extent that the average profit grew by this process.” (p 317)

Marx quotes Ricardo's comment:

“The rise of rent is always the effect of the increasing wealth of the country, and of the difficulty of providing food for its augmented population” (l.c., pp. 65-66).” (p 317)

However, for the reasons Marx, following Anderson, describes, there is no reason a rising population will result in an increased difficulty or cost in producing food to meet its needs. Marx also quotes Ricardo's further comment,

“Wealth increases most rapidly in those countries where the disposable land is most fertile, where importation is least restricted, and where through agricultural improvements, productions can be multiplied without any increase in the proportional quantity of labour, and where consequently the progress of rent is slow” (l.c., pp. 66-67).” (p 317)

However, as was demonstrated in Capital III, and in the tables provided earlier in Chapter XII, the total amount of rent can rise where the rate of rent is constant, but the amount of capital invested rises so as to produce more food to meet the demand of this larger population. More capital may be invested, because agriculture is undertaken more extensively, cultivating more land, or more intensively, cultivating the same amount of land, but with increased amounts of capital per hectare.

In the latter case, the increased investment of capital may produce relatively more, less, or the same amount of output, depending upon whether the marginal productivity of this capital is rising, falling or constant.

“...it can grow when no rent is paid on I and only a part of the absolute rent on II, but the differential rent has risen considerably as a result of their relative fertility etc.” (p 318)