If the capital employed doubles from £100 to £200, rent doubles from £10 to £20. However, if we consider lands of different fertility, although an increase of capital of equal proportions may increase the rents proportionately, the absolute amounts of rents will diverge, dependent upon the different degrees of fertility. For example, if £100 of capital produces £10 of rent on land A, and £20 on land B, £200 of capital produces £20 on A, and £40 on B. Here £40 is double £20, and so has risen proportionally by the same amount, because previously £20 was double £10. But, in absolute terms, the difference has increased from £10 to £20.
If A produced £10 of rent, and B produced £30 of rent, a doubling of capital from £100 to £200 would mean that A produced £20 of rent, whilst B produced £60 of rent. Now the rent on A rises by £10, but the rent on B rises by £30, i.e. by three times as much as the rise on A. This is the point Marx and Engels make, at length, in Capital III, in relation the effect of a rising, constant or falling marginal productivity of capital, as it applies to the fertility of different types of land, and which, thereby, affects the differential rent already arising from the differences in soil fertility.
Jones writes,
““The turnip and sheep husbandry, and the fresh capital employed to carry it on, produced a greater alteration in the fertility of the poor soils than in that of the better; still it increased the absolute produce of each, and, therefore, it raised rents, while it diminished the differences in the fertility of the soils cultivated” (loc. cit.).
With regard to Ricardo’s view that improvements may cause rents to fall , “it is only necessary to remember the slowly progressive manner in which agricultural improvements are practically discovered, completed, and spread…” (p. 211).” (p 407)
In relation to the last point, Marx notes that it does not affect the problem as such. It only signifies that improvements do not bring about so quick an increase in supply as to cause market prices to drop. As Marx set out, in his long wave analysis, in Chapter 9, these changes may require many years before they cause market values to fall. Rapid changes in market prices for particular agricultural products can arise as the Cobweb Theorem demonstrates, where high prices in one season cause an increase in production of that crop in the following season. But, that is simply an effect of changes in supply and demand, affecting market prices for that one product, not a change in productivity affecting the supply and market value of all agricultural products.
Marx sets out the following example. There are three class of land – a, b and c. £100 of capital is employed on each, and they produce output with respective exchange-values of £110, £115 and £120. If £10 represents the average profit, b produces a surplus profit/rent of £5 and c £10. So, total rent is £15. If improvements are made, and now £200 of capital is employed, the output value of each may rise to £220, £228 and £235 respectively. This reflects the fact that the marginal productivity of capital on the better soils is lower than on the worse soils. Had it been the same, output would have been £220, £230 and £240.
So, the difference between the fertility and surplus profit on the best soil has been reduced, relative to the worst soil. At the same time, however, the surplus profit/rent now amounts to £8 (b) and £15 (c), so that the total rent has risen from £15 to £23.
“The rate of difference has declined but its amount has increased. This does not, however, constitute a new law, but only shows that the increase of capital employed leads to an increase in rent as in the first law, although the increase in a, b and c is not proportional to their original differences of fertility. If prices were to fall as a consequence of this increased fertility (which is however [relatively] diminished fertility for b and c, for otherwise their product would have to be 230 and 240 respectively), it would by no means be necessary for the rent to rise or even to remain stationary.” (p 408)
Marx, therefore, sets out a third law which says,
“if “improvements in the efficiency of the capital employed in cultivation” increase the surplus profits realised on particular spots of land, they increase rent.” (p 408)
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