The vulgar economists, of course, do not want to explain capital in those terms, as something which exploits labour, and that it is this exploitation, the production of surplus value, which is the basis for the self-expansion of value.
“Instead he says: It has more value than its own value because it is an ordinary commodity like any other, that is, it possesses a use-value. Here capital is identified with commodity, whereas the point to be explained is how the commodity can function as capital.” (p 522)
The vulgar economists then convert capital into commodities, as factors of production – land, capital, labour and entrepreneurship. As commodities, they each have use value, and it is this use value that then, somehow, contributes value to the end product. The neoclassical economists systematise this view, describing the use value contributed by each factor in terms of its marginal physical product. The marginal revenue product, the value contributed by each of them, is then this marginal physical product multiplied by the price of the commodity. So long as the price of the factor is then equal to this marginal revenue product, a condition of equilibrium and optimal allocation of resources is established.
“The vulgarian, insofar as he does not echo the Physiocrats, deals with land in the opposite way. In the previous case, he converted capital into a commodity in order to explain the difference between capital and commodity and the conversion of the commodity into capital. Now he converts land into capital because the capital relation as such is more in tune with his ideas than the price of land.” (p 522)
And, on this basis the difference between revenues can be obscured. Rent can become nothing more than interest on capital. Indeed, the owner of money-capital can use it to buy land, where the rent obtainable from it is greater than the interest that could be obtained on money-capital. Both, as commodities, become speculative assets from which can be obtained not only revenue but also the potential for capital gain.
The price of the land becomes only the capitalised value of the rent. However, on the basis of this process of capitalisation, every asset that produces a revenue can be assigned a price, whether it has a value or not.
“And in this way, the formula land—rent is converted into capital—interest, which, for its part, is transmogrified into payment for the use-value of commodities, that is, into the relationship of use-value to exchange-value.” (p 522)
But, rent precedes its capitalisation into a price for land, because rent is surplus profit. So, rent cannot be reduced to interest. An increased price of land requires either that rents rise, as surplus profits in primary production rise, causing an increased demand for land for productive use, or else interest rates fall so that the owners of money-capital seek to buy land, in order to to obtain the higher revenue yield it now provides.
Some of the vulgar economists “therefore deny the existence of rent itself by asserting that it is interest on the capital invested in the land. This does not prevent them from admitting that land in which no capital is invested carries rent, any more than it prevents them from admitting that equal amounts of capital invested in land of different fertility yield different amounts of rent, or that unequal amounts of capital invested in land of unequal fertility may yield the same amounts of rent. [They admit] that likewise the capital invested in land—if indeed it is to account for the rent paid for the land—may yield perhaps five times as much interest, that is, five times as much rent, as is yielded by the same amount of capital invested as fixed capital in industry.
One perceives that here the difficulty is always eliminated by disregarding it and substituting a relationship expressing the opposite of the specific difference which has to be explained, and therefore, in any case, not expressing the difference at all.” (p 522-3)
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