THE SECOND FORM OF DIFFERENTIAL RENT.
(Differential Rent II.)
So far we have considered differential rent only as the result of the different productivity of different investments of capital upon equal areas of land with different fertilities, so that the differential rent was determined by the difference between the yield of the capital invested in the worst, rentless, soil and that of the capital invested in the superior soils, Here we had the invested capitals side by side upon different areas of land, so that every new investment of capital signified a more extensive cultivation of the soil, an expansion of the cultivated area. But in the last analysis the differential rent was by its nature merely the result of the different productivity of equal capitals invested in land.
But could it make any difference, perhaps, whether masses of capital of different productivities are invested successively on the same piece of land, or side by side on different pieces of land, provided that the results are the same?
In the first place, it cannot be denied that it is immaterial, so far as the formation of surplus profit is concerned, whether 3 pounds sterling of cost of production are invested in one acre of A and yield one-quarter of wheat, so that 3 pounds sterling are the price of production and regulating market price of 1 quarter, while 3 pounds sterling of cost of production applied to one acre of B give 2 quarters, and with them a surplus profit of 3 pounds sterling, while in the same way 3 pounds sterling of cost of production applied to one acre of C give 3 quarters and 6 pounds sterling of surplus profit, and finally 3 pounds sterling of cost of production applied to one acre of D give 4 quarters and 9 pounds sterling of surplus profit; or whether the same result is accomplished by applying these 12 pounds sterling of cost of production, or 10 pounds sterling of capital, with the same results and in the same succession upon one and the same acre. It is in either case a capital of 10 pounds sterling, a part of whose successively invested shares of a value of 2½ pounds sterling each, whether invested in four acres of different fertility side by side, or successively upon one and the same acre, does not yield any surplus profit on account of their different products, whereas the other parts yield a surplus profit in proportion to the difference of their yield from that of the rentless investment.
The surplus profits and the various rates of surplus profit for different parts of the value of capital are formed in the same way in either case. And the rent is nothing but a form of this surplus profit, which constitutes its substance. But at any rate, there are some difficulties in this second method in the way of the transformation of surplus profit into rent, of this change of form, which implies the transfer of the surplus profit from the capitalist tenant to the owner of the land. This accounts for the obstinate resistance of the English tenants to an official statistics of agriculture. It accounts for the struggle between them and the landlords over the ascertainment of the actual results of an investment of capital (Morton). For the rent is fixed when the lease for the land is made out, and after that the surplus profits arising from excessive investments of capital flow into the pockets of the tenant so long as the lease lasts. Therefore the tenants fought for long leases, and on the other hand the landlords enforced by their superior numbers an increase of the tenancies at will, which could be cancelled annually.
It is evident from the outset that even though it is immaterial for the law forming the surplus profit, whether equal capitals are invested with unequal results side by side upon equal areas of land, or whether they are invested successively on the same land, it does make a considerable difference for the conversion of surplus profit into ground-rent. The latter method confines this conversion within boundaries, which are narrower on one side and less definite on the other. For this reason the business of the tax assessor, as Morton shows in his "Resources of Estates," becomes a very important, complicated and difficult profession in countries with an intensive cultivation (and economically we mean by intensive cultivation nothing else but the concentration of capital upon the same piece of land, instead of its distribution over adjoining pieces of land). If the improvements of the soil are of the more permanent kind, the artificially raised differential fertility of the soil coincides with its natural fertility as soon as the lease expires, and this leads to the assessment of the rent by the basis of that which is due to the mere differences of fertility in different soils generally. On the other hand, so far as the formation of surplus profit is determined by the magnitude of the working capital, the amount of the rent paid by a certain amount of capital is added to the average rent of the country and care is taken that the new tenant commands sufficient capital to continue cultivation in the same intensive manner.
In the study of differential rent II, the following points must be noted:
1) Its basis and point of departure, not merely historically, but even as concerns its movements at any given period, is differential rent I, that is the simultaneous cultivation side by side of soils of different fertility and location; in other words the simultaneous application, side by side, of different portions of the total agricultural capital upon soil areas of different quality.
Historically this is a matter of course. In colonies the colonists have but little capital to invest. The principal agents of production are labor and land. Every individual head of a family seeks to acquire for himself and his, an independent field of employment, apart from that of his fellow colonists. This must be generally the case even under precapitalist modes of production in agriculture proper. In the case of sheep pastures, and generally of cattle raising as an independent line of production, the exploitation of the soil is more or less collective, and it is extensive from the outset. The capitalist mode of production starts out from former modes of production, in which the means of production are actually or legally the property of the tiller himself, in which agriculture is carried on by professionals. Naturally this mode of agriculture gives way but gradually to the concentration of means of production and their transformation into capital with a simultaneous change of direct producers into wage workers. So far as the capitalist mode of production asserts itself here in a typical manner, it does so at first mainly in sheep pastures and cattle raising; after that it does not assert itself by a concentration of capital upon a relatively small area of land, but in production on a larger scale, so that the expense of keeping horses and other costs of production may be saved; but in fact not by investing more capital in the same land. It is furthermore in the nature of field tillage that capital, which implies at this stage also the means of production already produced, should become the dominating element of agriculture, when cultivation has reached a certain hight and the soil has become correspondingly exhausted. So long as the tilled land constitutes a small area compared to the untilled, and so long as the strength of the soil has not been exhausted (and this is the case so long as cattle raising prevails with meat as the staple food, before agriculture proper and plant food have become dominant), the beginnings of the new mode of production show their opposition to peasants' economy mainly by large tracts of land which are tilled for the account of some capitalist, in other words, the new mode of production itself starts out with an extensive application of capital to larger areas of land. It should therefore be remembered from the outset, that differential rent No. I is the historical basis from which a start is made. On the other hand, the movement of differential rent No. II puts in its appearance at any given moment only upon a territory, which is itself but the variegated basis of differential rent No. I.
2) In differential rent No. II, the differences in the distribution of capital (and of the ability to get credit) among tenants are added to the differences in fertility. In manufacture proper, each line of business rapidly develops its own minimum volume of business and a corresponding minimum of capital, below which no individual business can be carried on successfully. In the same way each line of business develops, above this minimum, a normal size of capital, which the mass of producers must be able to command and do command. Whatever exceeds this, can form extra profits; whatever is below this, does not get the average profit. The capitalist mode of production invades agriculture but slowly and unevenly, as may be seen in England, the classic land of the capitalist mode of production in agriculture. To the extent that no free importation of cereals exists, or that its effect is but limited, because its volume is small, the producers working upon inferior soil and thus with worse than average conditions of production determine the market price. A large portion of the total mass of capital invested in husbandry and available for it is in their hands.
It is true that the farmer spends much labor on his small plot of land. But it is labor isolated from the objective social and material conditions of productivity, labor robbed and stripped of these conditions.
This circumstance makes it possible for the real capitalist tenants to appropriate a portion of the surplus profit; this would not be so, at least so far as this point is concerned, if the capitalist mode of production were as uniformly developed in agriculture as in manufacture.
Let us first consider the formation of surplus profit in differential rent No. II, without taking notice for the present of the conditions under which the conversion of this surplus profit into ground rent may take place.
It is evident, in that case, that differential rent No. II is but a different expression of differential rent No. I, but that it coincides with it in substance. The different fertility of the various kinds of soil exerts its influence in the case of differential rent No. I only to the extent that it brings about unequal results of the capitals invested in the soil, so that the products of equal capitals, or of equal aliquot parts of unequal capitals, are unequal. Whether this inequality takes place for different capitals invested successively in the same land, or for capitals invested in various tracts of different classes of soil, cannot alter anything in the differences of fertility, or in the differences of their products, nor in the formation of the differential rent for the more productively invested parts of capital. It is still the soil which shows different fertilities with the same investment of capitals, only that in this case the same soil does for a capital successively invested in different portions what different kinds of soil do in the case of differential rent No. I for various equally large portions of social capital invested in them.
If the same capital of 10 pounds sterling, which is shown by Table I to be invested in the shape of separate capitals of 2½ pounds sterling by different tenants in one acre of each of the soils A, B, C and D, were invested successively in one and the same acre D, so that its first investment yielded 4 quarters, the second 3 quarters, the third 2 quarters and the fourth 1 quarter (or vice versa), then the price of the 1 quarter, which is furnished by the least productive capital, namely the price of 3 pounds sterling, would not pay any differential rent, but would determine the price of production, so long as the supply of wheat with a price of production of 3 pounds sterling would be needed. And since our assumption is that the capitalist mode of production prevails, so that the price of 3 pounds sterling includes the average profit made by a capital of 2½ pounds sterling generally, the other three portions of capital of 2½ pounds sterling each will make surplus profits according to the difference of their product, since this product is not sold at their own price of production, but at the price of production of the least productive investment of 2½ pounds sterling, which does not pay any rent and whose price of production is determined by the general law of prices of production. The formation of the surplus profits would be the same as in Table I.
We see here once more that differential rent No. II is conditioned upon differential rent No. I. The minimum product raised by a capital of 2½ pounds sterling upon the worst soil is here assumed to be 1 quarter. Take it then that the tenant using soil of class D invests in this same soil, aside from the 2½ pounds sterling which raise 4 quarters and pay a differential rent of 3 quarters, still another capital of 2½ pounds sterling, which raise only 1 quarter, like the same capital upon the worst soil A. This would be a rentless investment, which would pay him only the average profit. There would be no surplus profit, which could be converted into rent. On the other hand, this decreasing yield of the second investment of capital in D would not have any influence on the rate of profit. It would be the same as though 2½ pounds sterling had been invested in another acre of the soil of class A, a circumstance which would in no way affect the surplus profit, nor for that reason the differential rent of the classes A, B, C, and D. But for the tenant this additional investment of 2½ pounds sterling in D would have been quite as profitable as the investment of the original 2½ pounds sterling had been per acre of D, according to our assumption, although this had raised 4 quarters. Furthermore, if two other investments of 2½ pounds sterling each should yield an additional product of 3 quarters and 2 quarters respectively, another decrease would have taken place compared with the product of the first investment of 2½ pounds sterling in D, which amounted to 4 quarters and paid a surplus profit of 3 quarters, But it would be merely a decrease in the amount of surplus profit, and would not affect either the average profit or the regulating price of production. It would have such an effect only if the additional production yielding this decreasing surplus profit should make the production upon A superfluous and throw class A out of cultivation. In that case the decreasing fertility of the additional investments of capital in class D would be accompanied by a fall of the price of production, for instance from 3 pounds sterling to 1½ pounds sterling, and the class B would become the rentless regulator of the market price.
The product of D would not be 4 + 1 + 3 + 2 = 10 quarters, whereas it was only 4 quarters formerly. But the price per quarter as regulated by B would have fallen to 1½ pounds sterling. The difference between D and B would be 10-2 = 8 quarters, at 1½ pounds sterling per quarter, or 12 pounds sterling, whereas the money rent in D used to be 9 pounds sterling. This should be noted. Calculated per acre, the amount of the rent would have risen by 33 1/3% in spite of the decreasing rate of the surplus profits on the two additional capitals of 2½ pounds sterling each.
We see by this to what highly complicated combinations differential rent in general, and particularly form II coupled with form I, may give rise, whereas Ricardo, for instance, treats it very onesidedly and as a simple matter. One may meet, as in the above case, with a fall of the regulating market price and at the same time with a rise of the rent upon superior soils, so that both the absolute product and the absolute surplus product grow. (In differential rent No. I, in a descending line, the relative surplus product and thus the rent per acre may increase, although the absolute surplus product per acre may remain constant or even decrease.) But at the same time the fertility of the investments of capital made successively in the same soil decreases, although a large portion of them falls upon the superior lands. From a certain point of view—both as concerns the product and the prices of production—the productivity of labor has risen. But from another point of view it has decreased, because the rate of surplus profit and the surplus product per acre decrease for the various investments of capital in the same soil.
Differential rent No. II, with a decreasing fertility of the successive investments of capital, would be necessarily accompanied with a rise of the price of production and an absolute decrease of the productivity only in the case that these investments of capital could be made on none but the worst soil A. If one acre of A, which raised with an investment of a capital of 2½ pounds sterling 1 quarter at a price of production of 3 pounds sterling, should raise only a total of 1½ quarters with an additional investment of 2½ pounds sterling, or a total investment of 5 pounds sterling, then the price of production of this 1½ quarter would be 6 pounds sterling, or that of one quarter 4 pounds sterling. Every decrease of the productivity with a growing investment of capital would imply a relative decrease of the product per acre in such a case, whereas it would signify only a decrease of the surplus product upon superior soils.
The nature of the matter will carry with it the fact that with the development of intensive culture, i.e., with successive investments of capital upon the same soil, mainly the superior soils will show this tendency, or will show it to a greater degree. (We are not speaking now of permanent improvements, by which a hitherto useless soil is converted into useful soil.) The decreasing fertility of the successive investments of capital must, therefore, have principally the effect indicated above. The better soil is chosen, because it offers the best prospects that the capital invested in it will be profitable, since this soil contains the greater quantity of the useful elements of fertility, which need but be utilised.
When after the abolition of the corn laws the cultivation in England was made still more intensive, a great deal of the former wheat land was used for other purposes, particularly for cattle pastures, while the tracts best adapted to wheat and fertile were drained and otherwise improved. The capital for wheat culture was thus concentrated into a more limited area.
In this case—and all possible surplus rates between the highest surplus product of the best soil and the product of the rentless soil A coincide here, not with a relative, but with an absolute increase of the surplus product per acre—the newly formed surplus profit (eventually rent) does not represent a portion of a former average profit converted into rent (not a portion of the product in which the average profit formerly incorporated itself) but an additional surplus profit, which converted itself out of this form into rent.
Only in the case in which the demand for cereals would increase to such an extent, that the market price would rise above the price of production of A, so that for this reason the surplus product of A, B, or any other class of soil could be supplied only at a higher price than 3 pounds sterling, would the decrease of the results of an additional investment of capital in A, B, C and D be accompanied by a rise of the price of production and of the regulating market price. To the extent that this would last for a certain length of time without calling forth the cultivation of additional soil (which should be at least of the quality of A), or without bringing on a cheaper supply through other circumstances, wages would rise in consequence of the dearness of bread, other circumstances remaining the same, and the rate of profit would fall accordingly. In this case it would be immaterial, whether the increased demand would be satisfied by drawing upon inferior soil than A, or by additional investments of capital, no matter upon which of the four classes of soil. Differential rent would then rise in connection with a falling rate of profit.
This one case, in which the decreasing fertility of additional capitals invested in already cultivated soils may lead to an increase of the price of production, a fall in the rate of profit, and a formation of higher differential rents—for this rent would rise under the given circumstances upon all classes of soil just as though inferior soil than A were regulating the market—has been stamped by Ricardo as the only case, the normal case, to which he reduces the entire formation of differential rent No. II.
This would also be the case, if only the class A of soils were cultivated, and if successive investments of capital upon it were not accompanied by a proportional increase of the product.
Here then differential rent No. I is entirely lost sight of when analysing differential rent No. II.
With the exception of this case, in which the supply from the cultivated classes of soil is insufficient, so that the market price stands continually higher than the price of production, until new soil of an inferior character is taken under cultivation in addition to the others, or until the total product of the additional capitals invested in the various classes of soil can be supplied only at a higher price of production than the hitherto customary one, with the exception of this case the proportional decrease in the productivity of the additional capitals leaves the regulating price of production and the rate of profit unchanged. For the rest three cases are possible.
a) If the additional capital upon any one of the classes of soil A, B, C or D yields only the rate of profit determined by the price of production of A, then no surplus profit, and therefore no rent, is formed, any more than there would be, if additional soil of the A class had been cultivated.
b) If the additional capital yields a larger product, then a new surplus profit (potential rent) is, of course, formed, provided the regulating price remains the same. This is not necessarily the case, namely it is not the case when this additional production throws the soil A out of cultivation and thus out of the succession of the competing soils. In this case the regulating price of production falls. The rate of profit would rise, if a fall in wages were connected with this, or if the cheaper product were to enter into the constant capital as one of its elements. If the increased productivity of the additional capital had taken place upon the best soils C and D, it would depend entirely upon the degree of the increased productivity and the mass of the additional capitals to what extent a formation of increased surplus profit (and thus increased rent) would be connected with the fall in prices and the rise of the rate of profit. This rate may also rise without a fall in wages, by a cheapening of the elements of constant capital.
c) If the additional investment of capital takes place with decreasing surplus profits, but in such a way that the product of such additional investment still leaves a surplus above the product of the same capital in A, a new formation of surplus profits takes place under all circumstances, unless the increased supply throws the soil A out of cultivation. This new formation of surplus profit may take place simultaneously upon all four soils, D, C, B and A. But if the worst soil A is crowded out of cultivation, then the regulating price of production falls, and it will depend upon the proportion between the reduced price of 1 quarter and the increased number of quarters yielding a surplus profit, whether the surplus profit expressed in money, and consequently the differential rent, shall rise or fall. But at any rate we meet here with the peculiarity, that in spite of decreasing surplus profits of successive investments of capital the price of production may fall, instead of rising, as it seems it ought to do at first sight.
These additional investments of capital with decreasing surplus products correspond entirely to the case, in which four new and separate capitals would be invested in soils having a fertility ranging between A and B, B and C, C and D, for instance four capitals of 2½ pounds sterling each and yielding 1½, 2 1/3, 2 2/3, and 3 quarters respectively. Surplus profits (potential rents) would form upon all these kinds of soil for all four additional capitals, although the rate of surplus profit, compared with the surplus profit of the same investment of capital, on the corresponding better soil, would have decreased. And it would be immaterial, whether these four capitals were invested in D, etc., or distributed between D and A.
We now come to one essential difference between the two forms of differential rent.
With a constant price of production and constant differences, the rental and the average rent per acre, or the average rent per capital, may rise under differential rent No. I. But the average is a mere abstraction. The actual amount of the rent, calculated per acre or per capital, remains the same here.
On the other hand, under the same conditions, the amount of the rent calculated per acre may rise, although the rate of rent, measured by the invested capital, remains the same.
Let us assume that production is doubled by the investment of 5 pounds sterling in each of the soils A, B, C and D instead of 2½ pounds sterling, a total of 20 pounds sterling instead of 10 pounds sterling, with the relative fertilities unchanged. This would be the same as though 2 acres instead of 1 were being cultivated, with the same cost, on each one of these classes of soil. The rate of profit would remain the same, also its ratio to the surplus profit or the rent. But if A were raising 2 quarters now, and B, 4, C, 6, D, 8, the price of production would nevertheless remain at 3 pounds sterling per quarter because this increment is not due to a doubled fertility of the same capital, but to the same proportional fertility of a doubled capital. The two quarters of A would now cost 6 pounds sterling, just as one quarter used to cost 3 pounds sterling. The profit would have doubled on all four classes of soils, but only because the invested capital did. But in the same proportion the rent would also have become doubled. It would now be two quarters for B instead of one, four for C instead of two, and six for D instead of three. And corresponding to this the money rent for B, C, and D would now be 6 pounds sterling, 12 pounds sterling, and 18 pounds sterling respectively. Like the product per acre, so the rent in money per acre would be doubled, and consequently the price of the land also, in which this rent is capitalised. If calculated in this manner, the amount of the rent in grain and money rises, and thus the price of land, because the standard by which the calculation is made, the acre, is a tract of a constant magnitude. On the other hand, calculating it as the rate of rent on the invested capital, no change has taken place in the proportional amount of the rent. The total rental of 36 is proportioned to the invested capital of 20 as the rental of 18 was proportioned to the invested capital of 10. The same holds good for the ratio of the money rent of all classes of soil to the capital invested in them, for instance, 12 pounds sterling of rent in C are proportioned to 5 pounds sterling of capital, as 6 pounds sterling of rent used to be proportioned to 2½ pounds sterling of capital. No new differences arise here between the invested capitals, but new surplus profits arise, because the additional capital is invested in one of the rent paying soils, or in all of them, with the same proportional product. If this double investment were made only in one of these soils, for instance in C, the differential rent, calculated per capital, would remain the same between C, B, and D. For while its mass is doubled in C, so is the invested capital.
This shows that the amount of rent in products and money, and with it the price of the land, may rise while the price of production, the rate of profit, and the differences of fertility remain unchanged (and with them remain unchanged the rate of surplus profit or the rent, calculated on the capital).
The same may take place with decreasing rates of surplus profits and of rent, that is, with a decreasing productivity of the rent paying additional investments of capital. If the second investments of capital of 2½ pounds sterling had not doubled the product, but B would raise only 3½ quarters, C, 5 quarters, and D, 6 quarters, then the differential rent for the second capital of 2½ pounds sterling in B would be only ½ quarter instead of one quarter, in C, one quarter instead of two, and in D, two quarters instead of three. The proportions between rent and capital for the two successive investments would then be as follows:
In spite of this decreased rate of the relative productivity of capital and thus of surplus profit, calculated per capital, the rent in grain and money would have risen in B from one to one and a half quarter (from 3 to 4½ pounds sterling), in C, from two quarters to three (from 6 pounds sterling to 9 pounds sterling), and in D, from three quarters to five (from 9 pounds sterling to 15 pounds sterling). In this case the differences for the additional capitals, compared with the capital invested in A, would have decreased, the price of production would have remained the same, but the rent per acre, and consequently the price of the land per acre, would have risen.
The combinations of differential rent No. II, which are conditioned upon differential rent No. I as their basis, are analysed in the following chapters.