[5. The General Rate of Profit and the Rate of Absolute Rent in Their Relation to Each Other. The Influence on Cost-Prices of a Reduction in Wages]
In Chapter XVII of his “Principles”, Ricardo, basing himself on an argument put forward by Buchanan, that all commodities that produce a rent sell at a monopoly price, argues that taxes on such commodities reduce rent, and similarly, improvements that reduce the cost of production of such commodities, result not in a fall in their price, but rather in an increase in rent. Ricardo says,
“In this view, all taxes on farm servants, horses, or the implements of agriculture, are in reality land-taxes; the burden falling on the farmer during the currency of his lease, and on the landlord, when the lease comes to be renewed. In like manner all those improved implements of husbandry which save expense to the farmer, such as machines for threshing and reaping, whatever gives him easier access to the market, such as good roads, canals and bridges, though they lessen the original cost of corn, do not lessen its market price. Whatever is saved by those improvements, therefore, belongs to the landlord as part of his rent.’” (p 387)
But, as Marx points out, this does not follow, and the real effects are far more complicated. Buchanan, like Smith and Ricardo, defines the monopoly price as “the very highest price at which the consumers are willing to purchase it”. However, Marx points out that it is only a monopoly price to the extent that it is sold at its exchange-value, rather than its price of production. Like other produce of the land, it is sold at its exchange-value, rather than the price of production, because of the existence of landed property, which is able to demand a rent equal to the difference between the price of production and the exchange-value, and thereby prevents additional capital entering this sphere so as to drive the price down to the price of production. Consequently, the lower the price of production, relative to the exchange-value, the greater the rent, and vice versa. So, any improvements made, of the type that Ricardo describes, will reduce the value of the commodity, and thereby act to reduce the difference between the price of production, and the exchange-value, and so thereby reduce the rent. But, Marx points out that whether this does reduce the rent depends on a number of other circumstances.
So, a fall in the value of agricultural commodities will lead to lower food prices etc. thereby reducing the value of all labour-power. That will cause the rate of surplus value across the economy to rise, also causing the average rate of profit to rise. The price of production comprises the cost of production (c + v) plus the average profit (calculated on the advanced capital not on the cost of production). If the average profit rises, then prices of production rise, including for agricultural products. In that case, Marx says, the difference between the price of production and the exchange-value of those products would fall, and so the rent would fall.
“Rent falls here because the rate of profit rises. Corn becomes cheaper, but its cost-price rises. Hence the difference between its value and its cost-price falls.” (p 388)
However, Marx misses an additional factor here that he only partially deals with at the end of the section. The price of production (cost-price) is (c + v) = k, the cost of production, plus p, the average profit calculated on the total advanced capital. But, the rise in the average rate of profit was the result of a rise in agricultural efficiency. In that case, Marx should also have noted that in agriculture, k, must also fall, because less congealed and immediate labour is required for any given level of output. Whether the price of production of corn falls or rises, therefore, depends upon whether (c + v), k, falls by more or less than p rises. Marx considers the direct effect on agricultural surplus value, at the end of the section, but not the consequence of a fall in the value of agricultural means of production. Marx should also have noted that a fall in agricultural/primary product prices will also cause the price of raw materials to fall, so that (c+v) in general will fall, so that although a higher rate of surplus value, and rate of profit ensues, the overall effect on all prices of production will depend upon the extent that p rises, relative to the fall in the value of k.
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