Considering the capitalist farmer then who has this additional £1,000 of capital to invest, but who faces a lower than average rate of profit from its use on their existing land, what is he to do? As Marx says, he could use the £1,000 to lease additional land, but capitalist agriculture favours more intensive rather than extensive production.
“Moreover, if no land could be leased in the immediate vicinity of the old land, two farms would split up the farmer’s work of super-intending them to a much greater extent, than six factories would split up the work of one capitalist in manufacture.” (p 335)
Instead, the farmer could put the £1,000 on deposit in the bank, or use it to buy bonds or shares, so as to obtain interest on it.
“Then, from the outset, he forgoes at least a half or a third of the usual profit. Hence, if he can invest it as additional capital on the old farm, even below the average rate of profit, say at 10 per cent, if his profit was 12, then, he will still be gaining 100 per cent if the rate of interest is 5 per cent. To invest the additional £1,000 in the old farm is, therefore, still a profitable speculation for him.” (p 335)
So, Marx says, its quite wrong for Ricardo to assume that the investment of this additional £1,000 of capital on the farmer's existing land is determined by the same considerations that determine the investment of capital on new land. The same might be said about incremental accumulations of circulating capital, and, in some conditions, fixed capital, for an industrial firm.
A manufacturer, faced with advancing a large amount of capital to establish a new factory, and all the attendant equipment etc. may only be prepared to do so if they have the prospect of obtaining, at least, the average rate of profit. If not, they might decide to use that capital to advance in some other line of production, where the average profit is obtainable. But, the same manufacturer may be prepared to advance a smaller amount of capital to make modifications to their existing factory, to obtain more space, to employ additional machines, or to invest in newer, more effective machines to replace existing equipment, even if this does not offer the average rate of profit. Similarly, they may be prepared, where possible, to use existing fixed capital more effectively, where it is underutilised, or where new working methods might be introduced, so as to accumulate additional circulating capital, again even though this additional capital does not produce the average profit.
“In the first case, the product does not have to yield the usual profit, even in capitalist production. It must only yield as much above the usual rate of interest as will make worth while the trouble and risk of the farmer to prefer the industrial employment of his spare capital to its employment as money capital.” (p 335)
The marginalist conclusion that Ricardo draws that the price of the commodity is regulated by the return on the marginal increment of capital for which there is no rent, is absurd Marx says, because Ricardo has just proved the opposite. It is rather the market price of the commodities produced on the land which regulates the application of additional capital. In other words, if those market prices are too low, insufficient profit may be generated to justify additional capital advances. But, the market price is not determined by the individual capital, which must accept it as a given.
“That profit is the only regulator for capitalist production is quite true. And it is therefore true that no absolute rent would exist if production were regulated solely by capital. It arises precisely at the point where the conditions of production enable the landowner to set up barriers against the exclusive regulation of production by capital.” (p 336)
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