Land exists naturally as no one's property. The first humans lived as nomads, moving out from the African plains to eventually colonise the whole planet. The first form of property in land, when humans settled, was communally owned land, possessed by the primitive commune or clan. But, with the development of private property, land itself becomes the private property of landlords who emerge from these earlier organisations, as they dissolve, and class society develops. Under precapitalist modes of production, the landlord obtains rent not as payment for use of the land, but as tribute, in the same way that the state obtains taxes, or the church obtains tithes. The payment, as Marx describes, is not arbitrary, but arises out of a recognition of the necessary labour that the producer must undertake to reproduce their own labour-power, the rent being a payment of surplus labour over and above that minimum requirement. It is the means by which surplus value is pumped from the labourer.
Capitalism, in Europe, therefore, inherits a system in which landed property already exists under feudalism. When feudalism begins to dissolve, as capitalism develops to replace it, so the landlords themselves begin to sell land that has been handed down through families for generations, in order to raise money to pay taxes, to cover their continued lavish consumption and so on. As land is bought and sold, so it becomes a commodity with a market price. The owner of landed property is able to charge a rent for its use, but unlike feudal rent, this capitalist rent is a function of profit. Capitalists will only pay rent for the use of land if the profit they obtain, after paying the rent, is at least equal to the average industrial profit. Industrial capital, thereby, determines the average industrial profit, and it is only where the profit obtained from capital being employed on the land – for agriculture or mineral extraction – is greater than this average industrial profit that capital will be invested, and rents, equal to this surplus profit, are then charged. It is because landed property already exists, that the landowner can insist on the payment of such rents, i.e. because they have this monopoly of land ownership.
Landed property, therefore, also like interest-bearing capital, plays no part in the circuit of industrial capital, or in the formation of the average industrial rate of profit. That rate is determined first, and then it is the surplus over and above it that constitutes rent. But, if landed property did not exist, capital would move freely into areas of production such as agriculture or mineral extraction, where a higher rate of profit was available, and would move away from areas of industry where the rate of profit was lower. The result would be that the general rate of profit would be higher, and surplus profits would disappear on the land, due to this competition. Rent, therefore, like interest is a deduction from profit.
But land, under capitalism, becomes a commodity, as does capital itself. The owner of loanable money-capital can sell it as a commodity to a capitalist who seeks its use value, i.e. to produce the average rate of profit. The price of this capital is the rate of interest. Similarly, the owner of landed property can sell the use value of land to a capitalist who seeks to utilise it. A capitalist who seeks to invest capital in agricultural or mineral production will only pay a price for the land, rent, that enables them to still make at least the average profit. Alternatively, they could buy the land, and the price of the land is the capitalised value of the rent it produces. But, land now exists not just as a commodity, but also, as with interest-bearing capital, as an asset. The owner of loanable money-capital who buys a bond, or a share obtains a financial asset. It is now not just that their money-capital returns them a revenue, interest, in the way that a bank that makes a loan obtains interest, but that the asset itself takes on the form of capital – fictitious capital. The price of the bond or share may now rise or fall, making a capital gain or loss, and these assets can now, themselves be bought and sold in the capital markets.
But now, land, as a commodity, and an asset, fulfils the same function. A speculator who owns bonds, can not only sell those bonds, and buy shares, if they feel that the yield on shares is higher, or likely soon to be higher, which also tends to have the effect of, subsequently, causing share prices to rise, bringing a capital gain alongside the higher yield, but they can also sell bonds and shares and buy land, if they feel that the yield on land and property, i.e. rental yield, is higher than for financial assets. Again, in such a case, the increase in demand for land and property, to obtain these higher yields pushes up land and property prices, so that those that own land obtain a capital gain as well as the higher yields.
The money invested to buy land, therefore, is capital, but only as fictitious capital. It is not independently self-expanding value. If I spend £1,000 to buy a piece of land, this £1,000 has in no way acted as real capital. It has not bought means of production or labour-power to expand production. On the contrary, the fact that I have had to spend this £1,000 means I have £1,000 less to advance as real capital. It is money I must spend, before I can productively invest capital, just as the rent I must pay, is money I must spend, before I could productively invest capital. Similarly, if I buy bonds or shares in the secondary market, this money does not go to the firm whose bonds or shares I have bought, but goes to the former owner of those bonds or shares. If the price of those bonds and shares has risen, then the additional money I pay for them is again money that otherwise could have gone to invest in real capital, i.e. to buy means of production and labour-power. Its true that the seller of the bonds or shares, now has this greater sum of money, and they could then use this money to invest in real capital accumulation. However, precisely because land/property, shares, bonds and their derivatives exist as assets, which might produce higher revenues – for example if company boards agree to pay a greater proportion of profits as dividends – it is just as possible that the recipients of the money will use it themselves for further speculation in such assets. Indeed, even if there is no prospect of higher yields, I may still speculate in buying more of these assets, simply on the expectation of obtaining capital gains, and when central banks make this a one way bet, by using QE to buy bonds, and so inflate the prices of such assets, I am certainly likely to decide to do that, rather than risk my money investing in real capital.
It is quite possible, therefore, that this process of inflating asset price bubbles for land/property, shares, bonds and their derivatives can continue completely separated from the real economy, and outside the circuit of industrial capital. That is what has been seen for the last thirty years. Similarly, the inevitable bursting of such asset price bubbles can occur outside the circuit of industrial capital.
“As regards the fall in the purely nominal capital, State bonds, shares etc.—in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists who hold such securities—it amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.”
(Theories of Surplus Value, Chapter 17)
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