Marx makes the same point about land prices and farmers. If, the price of land rises from £1,000 per hectare to £2,000 per hectare, and a farmer seeks to buy 1,000 hectares to cultivate, the amount of money they must now pay rises from £1 million to £2 million. That means that £1 million that the farmer would previously have had available to buy seed, equipment, animals and labour-power, all of which would have been employed to create new value, and surplus value, is no longer in their hands, but in the hands of the landowner who sells the land.
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| The money the farmer pays, to the landowner, for the land, does not re-enter the circuit of industrial capital. It may pass from the landlords hands, as revenue, back into the real economy (Bank Deposits - C`), but it may just as easily remain in the realm of assets, by being used to buy existing bonds, shares and so on, pushing the prices of these assets higher. |
This £1 million they have had to spend extra, forms no part of their productive-capital, contributes nothing to the value they create from their farming activity. It is just a dead cost to them, a transfer from the sphere of the real economy, into the sphere of assets, i.e. of the fictitious economy. It is similar to the tie-up of capital that Marx describes, except that involves actual capital, whose value, in the case of constant capital does form part of the value of output. The price of land is simply capitalised rent, and rent itself does not contribute to the value of output, as, say, seed or machinery does. It is simply a deduction from the farmer's profit, which itself is derived from the new value created by labour. A rise in land prices is, then, no different to a rise in rent, as an increased deduction from profit.
Of course, its not just people deciding they needed to buy a house to live in, for fear of losing out as prices rise. That same mentality enabled a cultural shift in the 1980's even, and certainly from the 1990's onwards, in which single people, who previously would have lived at home with parents, until they married, were encouraged to believe that, much as they had acquired their own car, so they must also acquire their own home.
As I have set out, previously, that saw a huge rise in the proportion of single occupant homes compared to previous times. Even as late as 1971, married couples made up 70% of households, with single person households making up just 21%. Today, households made up of married, or co-habiting couples, comprise only 52% of households, whereas the number of single person households has rocketed to 41%. That had a concomitant affect on their ability to pay for these homes, requiring a much greater reliance on borrowing than in previous times, which is one reason that deposits required for house purchase declined significantly, and mortgages of up to 125% of property prices were introduced in the frenzy that occurred prior to the inevitable bursting of the bubble in 2008.
The consequence is also that, whilst the number of homes per head of population has risen, and is now 50% higher than in the 1970's, the demand for homes has risen faster than supply. All of that was encouraged by the removal of credit controls, and creation of asset price bubbles by the Thatcher government in the 1980's. And, of course, what that also encouraged was other forms of such property speculation, such as the development of the buy-to-let landlord. From the 1980's onwards, interest rates entered a secular decline, as the rate of profit rose sharply, and realised profits increasingly exceeded the demand for additional money capital.
Faced with falling rates of interest on savings, money was encouraged into other speculative activities, such as property rental. Originally, these new landlords sought to improve on their low returns on savings, by being able to obtain a higher yield from rents. However, even as rents increased massively, in absolute terms, they failed to keep up with rising property prices so that rental yields also progressively fell. The stage was set for these landlords to begin looking away from revenues from rents, to the ability to make large capital gains, as the prices of their housing stock continued to soar.
On the one hand, rents could continue to soar, because the state was led to directly subsidise them via Housing Benefits, transferring tens of billions of pounds directly into the pockets of landlords each year, and, on the other, some property speculators, and syndicates could build new high value rental properties, and leave them empty, precisely because they were looking at the capital gain as their main objective, not rental income.
Higher rents paid by tenants require them to have higher wages to pay those rents, as it causes the value of labour-power to rise. Those higher wages, mean a reduced rate of surplus value, so that again, money is drained away from the real economy and productive-capital, and into the sphere of assets and fictitious capital. But, in a context of those who can becoming house buyers, its those on lower wages, or no wages, who are left to be renters. Hence, the inevitable rise in Housing Benefit, which now stands at nearly £20 billion a year, in the UK. But, the state obtains taxes to pay those Benefits, and that tax comes from a deduction from surplus value, which means it is no longer available for capital accumulation. Instead of the rent being a drain on surplus value, via higher individual workers' wages, it becomes a drain on surplus value, via a higher social wage, and again causes a drain of money from the real economy, and productive-capital into assets and the fictitious economy.
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