Marx gives a long quote from Ricardo (Principles, p 390-91), in which Ricardo discusses a situation where farmers face no rent, because prices only cover the price of production. A farmer, investing £10,000 will only invest an additional £1,000, he says, to meet additional demand, if he can be sure of prices at least able to cover this price of production. In the passage, Marx says, Ricardo admits that even the worst land can pay rent. For the additional £1,000 to be invested, and cover the price of production, grain prices must be rising. On this basis, Marx says, if prices initially covered the price of production, on the £10,000 capital, they must now exceed it, thereby producing a surplus profit on that £10,000. However, Marx says, the price must have risen, on Ricardo's argument, prior to the investment of the additional £1,000, so that the market value exceeded the price of production.
“In fact therefore before the second amount is invested the first amount of capital yields a rent on the worst land, because the market-value is above the cost-price. Thus the only question is whether, for this to happen, the market-value has to be above the value of the worst product, or whether on the contrary its value is above its cost-price, and the rise in price merely enables it to be sold at its value.” (p 332)
The reason that the price of production is sufficient to cover the advanced capital plus the average profit is precisely because of competition.
“That is, as a result of the action of capital upon capital.” (p 332)
If the prices are not high enough in one sphere, capital leaves it. Then supply falls and prices rise. The capital then settles in those spheres whose prices are higher than what is required to cover the price of production. Then those prices fall as this additional capital causes supply to rise. But, this cannot occur in agriculture precisely because of the existence of landed property. It is then not just a question of price being determined by competition, by the action of capital on capital, to produce an average rate of profit, and prices of production, but also of the action of landed property on capital.
“For it is precisely the competition of capitals amongst themselves, which enables the landlord to demand from the individual capitalist that he should be satisfied with “an average profit” and pay over to him the overplus of the value over the price affording this profit.” (p 332)
In other words, when agricultural prices are high enough to produce surplus profits, over the average rate of profit, in industry, capital wants to obtain those surplus profits. Individual capitals thereby compete to be able to obtain access to land, and that competition enables the landlord to raise rents until that surplus profit is absorbed. As I have set out elsewhere, this also means that even if the organic composition of capital in agriculture/mining is higher than in industry, it is still possible to levy absolute rent, because there is no reason for the landlord to rent out their land for free. In that case, the absolute rent is derived not from an excess of the market value of the output over the price of production, but is the result of a monopoly price.
“If landed property gives the power to sell the product above its cost-price, at its value, why does it not equally well give the power to sell the product above its value, at an arbitrary monopoly price? On a small island, where there is no foreign trade in corn, the corn, food, like every other product, could unquestionably be sold at a monopoly price, that is, at a price only limited by the state of demand, i.e., of demand backed by ability to pay, and according to the price level of the product supplied the magnitude and extent of this effective demand can vary greatly.” (p 332)
Such a closed, protected economy is an exception, though the Corn Laws attempted to create such conditions. Yet, even in an open economy, where foreign competition in agricultural prices would result in food imports, which undermined such monopoly prices, Marx says, land is frequently withdrawn artificially so as to cause rents, and land prices to rise.
“... even in England a large part of the fertile land is artificially withdrawn from agriculture and from the market in general, in order to raise the value of the other part—landed property can only affect and paralyse the action of capitals, their competition, in so far as the competition of capitals modifies the determination of the values of the commodities. The conversion of values into cost-prices is only the consequence and result of the development of capitalist production. Originally commodities are (on the average) sold at their values. Deviation from this is in agriculture prevented by landed property.” (p 333)
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