Marx quotes a passage from the “Observations” which describes the conditions of fixed supply, diminishing factor returns, and constant factor returns. In other words, when demand rises, either additional supply is brought forward, with the same cost of production (constant factor returns), so that any initial rise in market price is reversed, as demand and supply are balanced, or else the additional supply can only be provided at a higher cost of production (diminishing returns) so that when supply and demand balance, the equilibrium price remains higher than it was, or else supply cannot be increased at all, no matter how high the price rises.
In this latter case, a condition of monopoly exists. If demand exceeds the supply then surplus profits will arise, and the owners of the factor/s which prevent the supply being increased will obtain a rent, equal to these surplus profits. For example, if consumers place a high value on wine produced on a particular piece of land, this land cannot be replicated. The reason consumers place this high value on the particular land may be material or psychological. For example, wine produced from particular grapes on a particular soil, in particular climatic conditions will have its own material characteristics. Those characteristics may or may not be replicable by wine produced elsewhere, but even if they are, consumers may simply form a psychological preference for the wine produced on the specific land, and that is something that clever advertising and marketing attempts to achieve in brand recognition, for all commodities. In the case of the wine, the inability to recreate the land itself is the basis of the fixed supply, and surplus profit, so that the owner of that land obtains rent on that basis. The same thing might be seen with top class footballers, entertainers and so on.
In the case where supply can be increased but only at a higher cost of production, for example, because less fertile soil has to be used, the initial producers thereby sell their output at the new higher price, but their own costs have not changed, so that they now produce surplus profit, and the owners of that land are able to obtain a rent.
“Here, one need only say that in this book rent is for the first time regarded as the general form of consolidated surplus profit.” (p 116)
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