In addition to differential rent, Jones accepts that there may be absolute rent, on the worst soil, but only as a result of a monopoly price. As described earlier, Marx, in Capital III, shows how absolute rent arises as a result of the organic composition of capital in primary production being lower, on average, than in industry. That means the annual rate of profit, in primary production, on average, is higher, resulting in a surplus profit. The surplus profit is not competed away in primary production, because of the existence of landed property. That means that absolute rent can exist without the need for a monopoly price.
As I have set out elsewhere, however, that does not mean that such absolute rent may not arise due to monopoly prices. Even if the organic composition of capital was higher, on average, in primary production, so that the annual rate of profit was lower, landed property would still exist, and would still only make land available if it was paid a rent, unless in every such case, the landlord acted as also capitalist. So, the supply of land would be restricted, the supply of primary products would be restricted until such time as their market price rose to a level whereby employed capital could produce the average profit, as well as pay the absolute rent. This would be a rent based upon monopoly prices, and would represent a drain of surplus value from elsewhere in the economy. Such rents and transfer of surplus value arise everywhere that restrictions on free movement of capital enables monopoly prices to be levied.
Jones sets out an example where the average rate of profit is 10%, and £100 of capital, employed in producing corn, creates an exchange-value of £115. Here, £10 constitutes average profit, and £5 differential rent. If, now, £200 is invested, the output value rises to £230. £20 is average profit, and £10 is rent. However, Marx points out, this is true whether the rent, here, is differential rent or absolute rent.
Jones writes, setting out the basis of differential rent and its growth, as a result of an expansion of cultivation,
““In small communities corn may be constantly at a monopoly price… In larger countries too […] corn may […] be at a monopoly price, provided the increase of population keeps steadily ahead of the increase of tillage […] however […] monopoly price of corn is […] unusual in countries of considerable extent and great variety of soil. In such countries, if the produce of the soils in cultivation sells for more than will realise the usual rate of profit on the capital employed, other lands are cultivated; or more capital laid out on the old lands, till the cultivator finds he can barely get the ordinary profit on his outlay. Then […] tillage will stop, and in such countries […] corn is usually sold at a price not more than sufficient to replace the capital employed under the least favourable circumstances, and the ordinary rate of profit on it: and the rent paid on the better soils is then measured by the excess of their produce over that of the poorest soil cultivated by similar capitals” (loc. cit., pp. 191-92).
“All […] that is necessary to effect a rise of rents over the surface of a country possessing soils of unequal goodness, is this: that the better soils should yield to the additional capital employed upon them in the progress of cultivation, something more than the soils confessedly inferior to them; for then while the means can be found of employing fresh capital on any soil between the extremes A and Z, at the ordinary rate of profit, rents will rise on all the soils superior to that particular soil” (p. 195).” (p 404-5)
Marx comments,
“It is one of Jones’s merits, that he is the first who clearly brings out the fact that once rent has come into being, its growth will on the whole [provided no revolution in the mode of production takes place] result from the increase of agricultural capital, that is, of capital employed on land. This may be the case not only if prices remain the same but even when they fall below their former level.” (p 405)
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