Marx, then, sets about rescuing Ricardo's theory of rent from the mysticism that Proudhon had wrapped around it like a shroud. For Ricardo's theory of rent, it is first necessary to assume the existence of feudal landed property, as private property. There is a simple reason for that. Surplus profit also exists in industrial production, but where it does, competition removes it. Firstly, producers that have an advantage, who produce commodities with a lower individual value than the market value, increase their production so as to maximise the amount of the surplus profit they make. In so doing, and increasing supply, they lower the market value itself, and so the amount of surplus profit. But, other capitalists, seeing these surplus profits, move into this sphere of production – the basis of the formation of price of production and an average rate of industrial profit – and any advantages from the use of machines etc., are equalised, and output rises, reducing market price and removing any surplus profit. In short, there is no restriction on expanding the supply.
If land was like any other input, then the same would be true of primary production, and no rent could exist. When European colonists settled in North America, that was the case. But, in Europe, feudal landed property already existed, and so, to use the land, in the possession of the landlords, the capitalist farmers had to pay rent equal to this surplus profit. The surplus profit continued to exist, because competition could not, now, expand production in this sphere, so as to reduce market price and eradicate it.
If demand for primary products exceeds the supply, additional land must be brought into cultivation, but capital will only be applied if it can make the average profit. Ricardo believed that the law of diminishing returns applied, so that any new land used would be less fertile, and so with a higher cost of production. It would be this higher cost land that would determine the market value, and not the average cost land.
Marx shows that its not necessary to assume diminishing returns. The same rule applies if more fertile land is introduced later. It would still be the least fertile land that determines the market value, because, if the capital employed on this land, now, could not produce the average profit, it would leave production, causing supply to fall, and market prices to rise.
Of course, this is the scientific analysis and explanation of rent, but, as Marx also sets out, in Capital III, and Theories of Surplus Value, what appears as rent does not wholly conform to this scientific, economic definition. For example, not all renters are capitalist producers. Peasant farming continues, even today. The individual peasant producer must produce to live, and must rent the land to produce. So, the “rent”, here, is not a capitalist rent, but may eat into any surplus produced by the peasant, and even what is required for their own subsistence. A comparison could be made as with the difference between capitalist interest and usury.
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