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III. The Rate of Productivity of the Additional Capitals Increases. - Karl Marx, Capital: A Critique of Political Economy. Volume III: The Process of Capitalist Production as a Whole 
Capital: A Critique of Political Economy. Volume III: The Process of Capitalist Production as a Whole, by Karl Marx. Ed. Federick Engels. Trans. from the 1st German edition by Ernest Untermann (Chicago: Charles H. Kerr and Co. Cooperative, 1909).
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III. The Rate of Productivity of the Additional Capitals Increases.
This differs from Case I in the beginning of this chapter, in which the price of production falls while the rate of productivity remains the same, merely by the fact that soil A is thrown more quickly out of competition, if an increase of the product is required to effect this.
This may work its effects differently, according to the distribution of the investments over the various soils, no matter whether productivity be rising or falling. In proportion as these different effects balance the differences, or accentuate them, the differential rent of the better soils, and with it the total rental, will fall or rise, as we have seen in discussing differential rent No. I. For the rest, everything depends upon the size of the area and of the capital, which are thrown out of competition together with soil A, and upon the relative advanced of capital required with a rising productivity for the purpose of supplying the capital which is to cover the demand.
The only point which it is worth while to analyse here, and which alone carries us back to the investigation of the way in which this differential profit is converted into differential rent, is the following:
In the first case, in which the price of production remains the same, the additional capital which may be invested in the soil A is immaterial for the differential rent as such, since this soil A does not yield any rent now any more than it did before, the price of its product remains the same and continues to regulate the market.
In the second case of Variant No. I, in which the price of production falls while the rate of productivity remains the same, soil A will necessarily be thrown out, and still more so in Variant No. II, in which both the price and production and the rate of productivity fall, since otherwise the additional capital upon soil A would have to raise the price of production. But here, in Variant No. III of the second case, in which the price of production falls, because the productivity of the additional capital rises, this additional capital may eventually be invested upon the soil A as well as upon the better soils.
We will assume that an additional capital of 2½ pounds sterling, when invested upon the soil A, produces 1 1/5 quarter instead of 1 quarter.
This Table VI should be compared with both Basic Tables I and Table II, in which the double investment of capital is combined with a constant productivity proportional to the investment of capital.
According to our assumption the regulating price of production falls. If it were to remain constant, at 3 pounds sterling, then the worst soil which used to pay no rent with an investment of 2½ pounds sterling, would then yield a rent, although no worse soil would have been drawn into cultivation. This would have been accomplished by increasing the productivity of this soil, but only for a part, not for the original capital invested in it. The first 3 pounds sterling of cost of production bring 1 quarter; the second bring 1 1/5 quarter; but the entire product of 2 1/5 quarters is now sold at its average price.
Since the rate of productivity increases with the additional investment of capital, this implies an improvement. This may consist of a general increase of the capital per acre (more fertilizer, more mechanical labor, etc.), or it may be due exclusively to this additional investment that any difference in the quality and productiveness of the investment is brought about. In both cases the investment of 5 pounds sterling of capital per acre brings forth a product of 2 1/5 quarters, whereas the investment of the one-half of this capital, or 2½ pounds sterling, brought forth a product of only 1 quarter. The product of the soil A, leaving aside the question of transient market conditions, could not continue to be sold at a higher price of production instead of all the new average price unless a considerable area of the class A would remain under cultivation with a capital of only 2½ pounds sterling. But as soon as the new scale of 5 pounds sterling of capital per acre would become universal, and with it an improvement of cultivation, the regulating price of production would have to fall to 2 8-11 pounds sterling. The difference between the two portions of capital would disappear, and in that case the cultivation of one acre of soil A with a capital of only 2½ pounds sterling would be abnormal, would not correspond to the new conditions of production. It would then no longer be a difference between the yields of different portions of capital upon the same acre, but between a sufficient and an insufficient investment of capital per acre. This shows, 1), that an insufficient capital in the hands of large number of capitalist farmers (it must be a large number, for a small number would simply be compelled to sell below their price of production) produces the same effect as a differentiation of soils in a descending line. The inferior cultivation upon inferior soil increases the rent upon the superior soils; it may even create a rent upon better cultivated soil of the inferior kind, which would otherwise yield no rent. It shows, 2), that differential rent, to the extent that it arises from successive investments of capital in the same total area, resolved itself in reality into an average, in which the effects of the different investments of capital are no longer visible and distinguishable, so that the worst soil does not yield any rent, but rather, a), the average price or the total product of, say, one acre of A is made the new regulating price, and, b), the effects of the different investment of capital appear as changes in the total quantity of capital per acre, which is required under the new conditions for the adequate cultivation of the soil, and thus the individual successions of invested capital as well as their respective effects are indistinguishably amalgamated. It is the same with the individual differential rents of the superior kinds of soil. In every case they are determined by the difference of the average products of the various soils, compared to the product of the worst soil, with the increase of capital which has become the normal one.
No soil yields any product without an investment of capital. Even in the case of simple differential rent, or differential rent No. I, some capital must be invested. When we say that one acre of class A, which regulates the price of production, gives so and so much of a product at that and that price, and that the superior soils B, C and D yield so much differential product and so much money rent at the regulating price of production, it is always understood that a certain amount of capital is invested in A which is normal under the prevailing conditions. In the same way a certain minimum capital is required for every individual line of industry, in order that commodities may be produced at their price of production.
If this minimum is altered in consequence of successive investments of capital which are accompanied by improvements, it is done gradually. So long as a certain number of acres, say, of A, do not receive this additional first capital, a rent is created upon the better cultivated portions of A by the unaltered price of production, and the rent of all superior soils, such as B, C, D, is raised. But as soon as the new method of cultivation has become general enough to be the normal one, the prices of production falls; the rent of the superior soils declines then, and that portion of the soil A, which does not enjoy the normal running capital, must sell its product below its individual price of production, and therefore below the average profit.
In the case of a falling price of production this happens also, even assuming the productivity of the additional capital to be decreasing, as soon as the required total product is supplied in consequence of increased investments of capital by the superior classes of soil, so that the running capital is withdraw, say, from A and A does not compete any longer in the production of this one staple, say wheat. The quantity of capital, which is now required on an average as an investment upon the new regulating soil, B, is now considered the normal one; and when we speak of the different fertility of the soils, it is understood that this new normal quantity of capital is employed per acre.
On the other hand, it is evident that this average investment of capital, for instance 8 pounds sterling per acre in England before 1848, and 12 pounds sterling after that year, will form the standard in the making of leases for land. For any capitalist farmer spending more than that the surplus profit does not assume the form of rent during the time of his contract. Whether this takes place after the expiration of his contract, will depend upon the competition of the capitalist farmers, who are in a position to make the same extra advance. We are not speaking here of such permanent improvements of the soil as continue to guarantee an increased product with the same or with even a decreasing investment of capital. Such improvements, although products of capital, have the same effect as the natural differences of quality of the land.
We see, then, that an element must be considered in the case of differential rent No. II, which does not appear in differential rent No. I as such, since this last rent may continue independently of any change in the normal investment of capital per acre. It is on one hand the obliteration of the results of different investments of capital upon the regulating soil A, the product of which now appears simply as a normal average product per acre. It is on the other hand the change in the average minimum, or in the average magnitude of invested capital per acre, so that this change presents itself as a quality of the soil. It is finally the difference in the manner of transforming surplus profit into the form of rent.
Table VI shows furthermore, compared with Tables I and II, that the grain has increased more than double as compared to I, and by 1 1/5 quarters as compared to II; while the money rent has doubled as compared to I, but has not changed as compared with II. It would have increased considerably, if (other conditions remaining the same) the additional capital had been placed more upon the superior soils, or if the effects of the addition of capital to A had been less appreciable, so that the regulating average price of the quarter from A had stood higher.
If the increase of productivity by means of additional capital should produce different results upon different soils, it would cause a change in their differential rents.
At any rate we have demonstrated, that the rent per acre, for instance with a doubled capital, may not only be doubled, but more than doubled, while the price of production is falling in consequence of an increased rate of productivity of the additional capitals (as soon as the productivity grows at a greater rate than the advance of capital). But it may also fall, if the price of production should fall much lower as a result of a more rapid increase of productivity upon the soil A.
Let us assume that the additional investments of capital, for instance upon B and C, do not increase the productivity as much as they do upon A, so that the proportional differences would decrease for B and C, and the increase of the product did not make up for the fall in price, then, compared to Table II, the rent upon D would rise, and would fall upon B and C:
Finally, the money rent would rise, if more additional capital were invested upon the superior soils under the same proportional increase of fertility than upon A, or if the additional investments of capital upon the superior soils worked with an increasing rate of productivity. In both cases the differences would increase.
The money rent falls, when the improvement due to additional investments of capital which reduces the differences all over, or in part, affects A more than B and C. It falls so much the more, the less the productivity of the superior soils increases. It depends upon the proportion of inequality in the effects, whether the grain rent shall rise, fall, or remain stationary.
The money rent rises, and so does the grain rent, assuming the proportional difference in the additional fertility of the different soils to remain unaltered, when more capital is added to the rent paying soils than to the rentless soil A, and more capital placed upon the soils with high than those with low rents, or when the fertility, assuming the same additional capital to be used, increases more upon the better and best soils than upon A, and at that in proportion as this increase in fertility is greater upon the better classes of soil than upon the lesser ones.
But under all circumstances the rent rises relatively, when the increased productive power is a result of an addition of capital, and not merely a result of increased fertility with an unaltered investment of capital. This is the absolute point of view, which shows that here, as in former cases, the rent and the increased rent per acre (as in the case of differential rent I upon the entire cultivated area—the amount of the average rental) are a result of an increased investment of capital in the soil, no matter whether this capital does its work with a constant rate of productivity at constant or decreasing prices, or with a decreasing rate of productivity at constant or falling prices, or with an increasing rate of productivity at falling prices. For our assumption of a constant price with a constant, falling, or rising rate of productivity of the additional capitals, and of a falling price with a constant, falling, or rising rate of productivity, resolves itself into a constant rate of productivity of the additional capital at constant or falling prices, a falling rate of productivity at constant or falling prices, and a rising rate of productivity at constant and falling prices. Although the rent may remain stationary or may fall in all these cases, it would fall more, if the additional investment of capital, other circumstances remaining the same; were not a prerequisite of an increased fertility. An addition of capital, then, is always the cause of the relative magnitude of this rent, although it may have decreased absolutely.
DIFFERENTIAL RENT NO. II.—THIRD CASE: RISING PRICE OF PRODUCTION.
[A RISING price of production presupposes that the productivity of the least productive quality of land, which pays no rent, decreases. The regulating price of production cannot rise above 3 pounds sterling per quarter, unless the 2½ pounds sterling invested in soil A produce less than one-quarter, or the 5 pounds sterling less than two-quarters, or unless, even inferior soil than A has to be taken under cultivation.
If the productivity of the second investment of capital should remain the same, this would be possible only in the case that the productivity of the first investment of capital would have decreased. This case occurs often enough. It happens, for instance, when the top soil, exhausted and superficially plowed, produces inferior crops with the old style of cultivation, and when the subsoil, thrown up by deeper plowing, produces better crops than formerly under a more rational treatment. But strictly speaking this special case does not belong here. The falling off in the productivity of the first investment of 2½ pounds sterling implies for the superior soils, even when conditions with them should be analogous, a decrease of the differential rent No. I; but here we are considering only differential rent No. II. Since the present special case cannot occur without the previous existence of differential rent No. II, but represents in fact a reaction of a certain modification of differential rent No. I upon No. II, we will give and illustration of it.
The money rent, and the yield in money, are the same as in Table II. The increased regulating price of production makes up exactly for what has been lost in the quantity of the product; since both of them vary in an inverse proportion, it is a matter of course that the product of both will remain the same.
In the above case we had assumed that the productive power of the second investment of capital was higher than the original productivity of the first investment. The matter remains the same, if we assume that the second investment has only the same productivity as that of the first, as shown in the following:
B) If an inferior soil (designated as a) becomes the regulator of prices and soil A produces a rent. This admits of a constant productivity of the second investment in the case of all variants.
As the general result of our analysis of differential rent we come to the following conclusions:
1) The formation of surplus profits may take place in different ways. On the one hand it may come about by the help of differential rent No. I, that is, by an investment of the entire agricultural capital upon one soil area consisting of soils of different fertilities. Or, it may come about by means of differential rent No. II, that is by means of the varying differential productivity of successive investments of capital upon the same soil, which signifies here a greater productivity, say in wheat measured by quarters, than is secured with the same investment of capital upon the worst rentless soil, which regulates the price of production. But no matter how these surplus profits may arise, their transformation into rents, their transfer from the capitalist farmer to the landlord, always presupposes that the various individual prices of production represented by the partial products of the individual capitals invested in succession (independently of the general price of production by which the market is regulated) have previously been reduced to an individual average price of production. The excess of the general regulating price of production of the product of one acre over its individual average price, forms and measures the rent per acre. In differential rent No. I the differential results may be distinguished by themselves, because they take place upon differentiated portions of land lying side by side, with an investment of capital and a degree of cultivation considered normal per acre. In differential rent No. II they must first be made distinguishable; they must in fact be reconverted into differential rent No. I, and this cannot take place in any other but the indicated way. Take for instance Table III, Chapter XLI, 3.
Soil B gives for the first investment of capital 2½ pounds sterling 2 quarters per acre, and for the second equally large one 1½ quarters; together 3½ quarters upon the same acre. These 3½ quarters do not show what part of them is a product of the investment of capital No. I and what part a product of capital No. II, for they are all grown upon the same soil. They are in fact the product of the total capital of 5 pounds sterling; and the actual condition of the matter is that a capital of 2½ pounds sterling produced 2 quarters, and a capital of 5 pounds sterling produced only 3½ quarters, not 4 quarters. The case would be just the same, if these 5 pounds sterling were producing 4 quarters, so that the proceeds of both investments of capital would be the same, or even 5 quarters, so that the second investment of capital would yield a surplus of 1 quarter. The price of production of the first 2 quarters is 1½ pounds sterling per quarter, and that of the second 1½ quarters is 2 pounds sterling per quarter. Consequently the 3½ quarters together cost 6 pounds sterling. This is the individual price of production of the total product, and it makes an average of 1 pound and 14 2/7 shillings per quarter, in round figures 1¾ pounds sterling. With the average price of production regulated by soil A, namely 3 pounds sterling, this makes a surplus profit of 1¼ pounds sterling per quarter, and for the total 3½ quarters profit of 4 3/8 pounds sterling. With the average price of production of B this is represented by about 1½ quarters. In other words, the surplus profit of B is represented by an aliquot portion of the product of B, by these 1½ quarters, which express the rent in terms of grain, and which under the prevailing price of production sell at 4½ pounds sterling. But on the other hand, the surplus product of one acre of B compared to that of A is not without ceremony a formation of surplus profit, is not offhand a surplus product. According to our assumption one acre of B produces 3½ quarters, whereas one acre of A produces only 1 quarter. The surplus of the product of B is, therefore, 2½ quarters, but the surplus product is only 1½ quarters; for the capital invested in B is twice that of A, and for this reason its cost of production is doubled. If soil A should also receive an investment of 5 pounds sterling, and the rate of productivity should remain the same, then the product would amount to 2 quarters instead of 1 quarter, and it would then be seen that the actual surplus product is found, not by a comparison of 3½ with 1, but of 3½ with 2, so that it would be only 1½ quarter, not 2½ quarters. Furthermore, if B should invest a third capital of 2½ pounds sterling, which would produce only 1 quarter, so that this quarter would cost 3 pounds sterling, the same as that of A, then its selling price would cover only the cost of production, would yield only the average profit, but not a surplus profit, and would not offer anything that could be converted into rent. The product per acre of any kind of soil, compared with the product per acre of soil A, shows neither whether it is a product of the same or of a larger investment of capital, nor whether the additional product covers merely the price of production, nor whether it is due to a greater productivity of the additional capital.
2) With a decreasing rate of productivity of the additional investments of capital, whose limits, so far as the new formation of surplus profit is concerned, is that investment of capital which just covers the cost of production, in other words, which produces one quarter at the same expense as the same investment of capital in one acre of soil A, amounting to 3 pounds sterling according to our assumption, we come to the following conclusions on the basis of what has gone before: That the limit, where the total investment of capital in one acre of B would not yield any more rent, is reached when the individual average price of production of the product per acre of B would rise to the price of production per acre of A.
If B invests only such additional capital as pays just the price of production, but forms no surplus profit, no rent, then this raises only the individual average price of production per quarter, but does not affect the surplus profit, or eventually the rent, formed by previous investments of capital? For the average price of production always remains under that of A, and when the excess over the price per quarter decreases, then the number of quarters increases in the same ratio, so that the total excess over the price remains unaltered.
In the case assumed, the first two investments of capital of 5 pounds sterling produce 3½ quarters upon B, which amounts to 1½ quarters of rent, at 4½ pounds sterling, according to our assumption. Now, if a third investment of capital of 2½ pounds sterling is added, which produces only one additional quarter, then the total price of production (including a profit of 20%) of the 4½ quarters is 9 pounds sterling, so that the average price per quarter is 2 pounds sterling. The average price of production per quarter upon B has then risen from 1 5/7 pounds sterling to 2 pounds sterling, so that the surplus profit per quarter, compared with the regulating price of A, has fallen from 1 2/7 pounds sterling to 1 pound sterling. But 1 × 4½ = 4½ pounds sterling, just as formerly 1 2/7 × 3½ = 4½ pounds sterling.
upon B, and that these investments produce one quarter only at its average price of production, then the total product per acre would by 6½ quarters, and their cost of production 15 pounds sterling. The average price of production per quarter of B would have risen once more, from 1 pound sterling to 2 4/13 pound sterling, and the surplus profit per quarter, compared with the regulating price of production of A, would have dropped once more, from 1 pound sterling to 9/13 pound sterling. But these 9/13 would now have to be calculated upon 6½ quarters instead of 4½ quarters. And 9/13 × 6½ = 1 × 4½ = 4½ pounds sterling.
The inference from this is, in the first place, that no raising of the regulating price of production is necessary under these circumstances, in order to make possible additional investments of capital even to the point where the additional capital ceases wholly to produce any surplus profit and yields only the average profit. It follows furthermore that the sum of the surplus profit per acre remains the same here, no matter how much the surplus profit per quarter may decrease; this decrease is always balanced by a corresponding increase of the quarters produced per acre. In order that the average price of production may rise to the general price of production (in this case to 3 pounds sterling for soil B) it is necessary that additions should be made to the capital, which must have a product of a higher price of production than the regulating one of 3 pounds sterling. But we shall see that this does not suffice without further ado in order to raise the average price of production per quarter of B to the general price of production of 3 pounds sterling.
Let us assume that soil B produced.
1) 3½ quarters as before at a price of production of 6 pounds sterling; this with two investments of capital of 2½ pounds sterling each, which both form surplus profits, but of a decreasing amount.
2) 1 quarter at 3 pounds sterling; an investment of capital, in which the individual price of production shall be equal to the regulating price of production.
3) 1 quarter at 4 pounds sterling; an investment of capital, in which the individual price of production shall be higher by 25% than the regulating price.
We should then have 5½ quarters per acre, at 13 pounds sterling, with an investment of a capital of 10 pounds sterling; this would be four times the original investment of capital, but not quite three times the product of the first investment of capital.
5½ quarters per acre at 13 pounds sterling make an average price of production of 2 4/11 pounds sterling, which would give a surplus of 7/11 pound per quarter at the regulating price of production of 3 pounds sterling . This surplus may be converted into rent. 5½ quarters sold at the regulating price of production of 3 pounds sterling make 16½ pounds sterling. After deducting the cost of production of 13 pounds sterling a surplus, or rent of 3½ pounds sterling remains, which, calculated at the present average price of production per quarter of B, that is, at 2 4/11 pounds per quarter, represent 1 5/72 quarters. The money rent would have fallen by 1 pound sterling, the grain rent by about ½ quarter, but in spite of the fact that the fourth additional investment upon B does not produce a surplus profit, but even less than the average profit, a surplus profit and a rent still continue to exist. Let us assume that not only the investment of capital as illustrated in No. 3), but also that in No. 2), produce at a cost exceeding the regulating price of production, then the total production is 3½ quarters at 6 pounds sterling plus 2 quarters at 8 pounds sterling, total 5½ quarters at 14 pounds sterling cost of production. The average price of production per quarter would be 2 6/11 pounds sterling, and it would leave a surplus of 5/11 pound sterling. The 5½ quarters, sold at 3 pounds sterling, make 16½ pounds sterling; subtract the 14 pounds sterling of cost of production, and 2½ pounds sterling remain for rent. At the present average price of production upon B this would be equivalent to 55/56 quarters. In other words, a rent would still remain, although less than before.
This shows at any rate, that upon the better soils with additional investments of capital, whose product costs more than the regulating price of production, the rent does not disappear, at least not within the bounds of admissible practice, although it must decrease, and will do so in proportion, on the one hand, to the aliquot part formed by this unproductive capital in the total investment of capital, on the other hand in proportion to the decrease of its fertility. The average price of its fertility would still stand below the regulating price and would still leave a surplus profit that could be converted into rent.
Let us now assume that the average price per quarter of B coincides with the general price of production, in consequence of four successive investments of capital (2½, 2½, 5 and 5 pounds sterling) with a decreasing productivity.
The capitalist renter in this case sells every quarter at its individual price of production, and consequently the total number of quarters at their average price of production per quarter, which coincides with the regulating price of 3 pounds sterling. Hence he still makes a profit of 20%, or 3 pounds sterling, upon his capital of 15 pounds sterling. But the rent is gone. What has become of the surplus in this compensation of individual prices of production per quarter with the general price of production?
The surplus profit on the first 2½ pounds sterling was 3 pounds sterling; on the second 2½ pounds sterling it was1½ pounds sterling; total surplus profit on one-third of the invested capital, that is, on 5 pounds sterling, 4½ pounds sterling, or 90%.
In the case of investment No. 3) the 5 pounds sterling do not only yield no surplus profit, but its product of 1½ quarters, if sold at the general price of production, gives a minus of 1½ pounds sterling. Finally, in the case of investment No. 4), which amounts likewise to 5 pounds sterling, its product of 1 quarter, if sold at the general price of production, gives a minus of 3 pounds sterling. Both investments of capital together give a minus of 4½ pounds sterling, equal to the surplus profit of 4½ pounds sterling, which was realized on investments Nos. 1) and 2).
The surplus profits and deficits balance one another. Therefore the rent disappears. In fact this is possible only because the elements of surplus-value, which form a surplus profit, or rent, now pass into the formation of the average profit. The capitalist renter makes this average profit of 3 pounds sterling on 15 pounds sterling, or of 20%, at the expense of the rent.
The compensation of the individual average price of production of B to the general price of production A, which regulates the market, presupposes that the difference, by which the individual price of the product of the first investment of capital stands below the regulating price, is more and more compensated and finally balanced by the difference, by which the product of the subsequent investments of capital stands above the regulating price. What appears as a surplus profit, so long as the product of the first investment of capitals sold by itself, becomes by degrees a part of their average price of production, and thereby enters into the formation of the average profit, until it is finally absorbed in this way.
If only 5 pounds sterling are invested in B, instead of 15 pounds sterling, and if the additional 2½ quarters of the last Table are produced by taking 2½ new acres of A under cultivation with an investment of 2½ pounds sterling per acre, then the invested additional capital would amount only to 6¼ pounds sterling, so that the total investment on A and B for the production of these 6 quarters would be only 11¼ pounds sterling instead of 15 pounds sterling, and the total cost of production of these including the profit of 13½ pounds sterling. The 6 quarters would still be sold at 18 pounds sterling, but the investment of capital would have decreased by 3¾ pounds sterling, and the rent upon B would be 4½ pounds sterling per acre, as before. It would be different, if the production of additional 2½ quarters would require that inferior soil than A, for instance A—1, A—2, should be taken under cultivation; so that the price of production per quarter, for 1½ quarters on soil A—1 would be 4 pounds sterling, and for the last quarter on soil A—2 would be 6 pounds sterling. In this case these 6 pounds sterling would be the regulating price of production per quarter. The 3½ quarters of B would then be sold at 21 pounds sterling instead of 10½ pounds sterling, and this would leave a rent of 15 pounds sterling instead of 4½ pounds sterling, or in grain a rent of 2½ quarters instead of 1½ quarter. In the same way the one quarter on A would now leave a rent of 3 pounds sterling, or of ½ quarter.
Before we discuss this point any further, we will pause to make the following observation.
The average price of one quarter of B is compensated and coincides with the general price of production of 3 pounds sterling per quarter, regulated by A, as soon as that portion of the total capital, which produces the excess of 1½ quarter, is balanced by that portion of the total capital, which produces a deficit of 1½ quarter. How soon this compensation is effected, or how much capital with less than average productivity must be invested in B for that purpose, will depend, assuming the surplus productivity of the first investments of capital to be given, upon the relative underproductivity of the later invested capitals, compared with an investment of the same amount upon the worst regulating soil A, or upon the individual price of production of their product, compared with the regulating price.
We now come to the following conclusions from the foregoing:
1) So long as the additional capitals are invested in the same soil with a surplus productivity, even a decreasing one, the absolute rent in grain and money increases per acre, although it decreases relatively, in proportion to the advanced capital (in other words, the rate of surplus profit, or rent). The limit is here formed by that additional capital, which yields only the average profit, or the price of production of whose product coincides with the general price of production. The price of production remains the same under these circumstances, unless the production upon the lesser soils becomes superfluous through an increased supply. Even with a falling price may these additional capitals still produce a surplus profit, though a smaller one, within certain limits.
2) The investment of additional capital, which produces only the average profit, whose surplus productivity is therefore zero, does not alter anything in the level of the existing surplus profit, and consequently of the rent. The individual average price per quarter increases thereby upon the superior soils; the surplus per quarter decreases, but the number of quarters, which carry this decreased surplus, increases, so that the product remains the same.
3) Additional investments of capital, whose product has an individual price of production exceeding the regulating price, whose surplus productivity is therefore not merely zero, but less than zero, that is, a minus lower than the productivity of the same investment of capital upon the regulating soil A, bring the individual average price of production of the total product of the superior soil closer to the general price of production, reduce more and more the difference between both, which forms the surplus profit, or rent. More and more of that which forms a surplus profit, or rent, passes over into the formation of the average profit. But nevertheless the total capital invested in one acre of B continues to yield a surplus profit, although a decreasing one in proportion as the capital with undernormal productivity and the degree of its underproductivity increase. The rent, with an increasing capital and increasing production, decreases in this case absolutely per acre, not merely relatively as compared to the increasing size of the invested capital, as in the second case.
The rent cannot disappear, unless the individual average price of production of the total product of the better soil B coincides with the regulating price, so that the entire surplus profit of the first more productive investment of capital is consumed in the formation of the average profit.
The minimum limit of the fall for the rent per acre is the point at which it disappears. But this point does not assert itself, as soon as the additional investments of capital work with an underproductivity, but rather as soon as the additional investment of the underproductive capitals becomes so great that their effect paralyzes the overproductivity of the first investments of capital, so that the productivity of the total capital becomes the same as that of A, and the individual average price of the quarter of B the same as that of the quarter of A.
In this case, likewise, the regulating price of production, 3 pounds sterling per quarter, remains the same, although the rent would have disappeared. Only after this point would have been passed, would the price of production have to rise in consequence of an increase of either the degree of underproductivity of the additional capital or of the magnitude of the additional capital of the same underproductivity. For instance, if in the above Table 2½ quarters were produced instead of 1½ quarters, at 4 pounds sterling per quarter, upon the same soil, then we should have altogether 7 quarters at 22 pounds sterling cost of production; the quarter would cost 3 1/7 above the general price of production which would have to rise.
For a long time, then, additional capital with underproductivity, or even increasing underproductivity, might be invested, until the individual average price per quarter of the best soils would become equal to the general price of production, until the excess of the latter over the former, and with it the surplus profit and the rent, would entirely disappear.
And even in this case the disappearance of the rent from the better kinds of soil would only signify that the individual average price of their products would coincide with the general price of production, so that this last price would not have to rise.
In the above illustration, upon soil B, which is there the lowest of the better rent paying soils, 3½ quarters were produced by a capital of 5 pounds sterling with a surplus productivity, and 2½ quarters by a capital of 10 pounds sterling with underproductivity, together 6 quarters, of which 5/12 are produced by the capitals with underproductivity. And only at this point does the individual average price of production of the 6 quarters rise to 3 pounds sterling and coincide with the general price of production.
Under the law of landed property, however, the last 2½ quarters could not have been produced in this way at 3 pounds sterling per quarter, with the exception of the case, in which they may be produced upon 2½ new acres of the soil A. The case, in which the additional capital produces only at the general price of production, would have been the limit. Beyond it the additional investment of capital would have to cease upon the same soil.
If the capitalist renter once pays 4½ pounds sterling of rent for the first two investments of capital, he must continue to pay them, and every investment of capital, which produces one quarter below 3 pounds sterling, would cause him a deduction from his profit. The compensation of the individual price of production, in the case of underproductivity, is thereby prevented.
Let us take this case in the previous illustration, in which the price of production of the soil A, at 3 pounds sterling per quarter, regulates the price for B.
The cost of production of the 3½ quarters in the first two investments is likewise 3 pounds sterling per quarter for the capitalist renter, since he has to pay a rent of 4½ pounds sterling, the difference between his individual price of production and the general price of production not flowing into his pocket. In his case, then, the excess of the price of the first two investments of capital cannot serve for the compensation of the deficit incurred in the production of the third and fourth investment of capital.
The 1½ quarters in investment No. 3) cost the capitalist renter, with profit included, 6 pounds sterling; but at the regulating price of 3 pounds sterling per quarter he can sell them only for 4½ pounds sterling. In other words, he would not only lose his whole profit, but also ½ pound sterling, or 10% of his invested capital of 5 pounds sterling. The loss of profit and capital in the case of investment No. 3) would amount to 1½ pound sterling, and in the case of investment No. 4) 3 pounds sterling, together 4½ pounds sterling, just as much as the rent of the better investments amounts to, whose individual price of production cannot take part in the compensation of the individual average price of production of the total product of B, because its surplus is paid as a rent to some third person.
If the demand should require that the additional 1½ quarters must be produced by a third investment of capital, then the regulating market price would have to rise to 4 pounds sterling per quarter. In consequence of this rise in the regulating market price the rent upon B would rise for the first and second investment, and a rent would be formed upon A.
Although the differential rent is but a formal transformation of surplus profit into rent, since property in land enables the owner in this case to draw the surplus profit of the capitalist render into his own hands, we find nevertheless that the successive investment of capital upon the same land, or, what amounts to the same, the increase of the capital invested in the same land, reaches its limit far more rapidly when the rate of productivity of the capital decreases and the regulating price remains the same, so that in fact a more or less artificial barrier is erected as a consequence of the mere formal transformation of surplus profit into ground rent,—which is the result of private property in land. The rise of the general price of production, which becomes necessary when the limit is narrowed beyond the ordinary, is in this case not merely the cause of a rise of the differential rent, but the existence of differential rent as rent is at the same time a reason for the earlier and more rapid rise of the general price of production, in order to insure by this means the supply of the needed larger product.
Furthermore we must make a note of the following facts:
By an addition of capital to soil B the regulating price could not, as above, rise to 4 pounds sterling, if soil A should supply the additional product below 4 pounds sterling by a second investment of capital, or if new and worse soil than A should come into competition, whose price of production would be higher than 3 but lower than 4 pounds sterling. We see, then, that differential rent No. I and differential rent No. II, while the first is the basis of the second, are at the same time mutual limits for one another, by which now a successive investment of capital upon the same soil, now an investment of capital side by side upon new soil, is brought about. In like manner they act as mutual boundaries in other cases, for instance, when better land is taken up.
DIFFERENTIAL RENT EVEN UPON THE WORST SOIL UNDER CULTIVATION.
LET us assume that the demand for grain is rising, and that the supply cannot be made to cover the demand, unless successive investments of capital with deficient productivity are made upon the rent-paying soils, or by an additional investment of capital, likewise with a decreasing productivity, upon soil A, or by the investment of capital in new lands of a lesser quality than A.
Let us take soil B as a representative of the rent paying soils.
The additional investment of capital demands a rising of the market price above the prevailing price of production of 3 pounds sterling per quarter, in order that the increased production of one quarter (which may here stand for one million quarters, as may every acre for one million acres) upon B may be possible. An increased production may also take place upon soils C and D, etc., the soils paying the highest rent, but only with a decreasing power to produce a surplus; but it is assumed that the one quarter upon B must necessarily be produced in order to cover the demand. If this one quarter is more easily produced by investing more capital in B than with the same addition of capital to A, or by descending to soil A—1, which may, perhaps, produce one quarter only for 4 pounds sterling, whereas the additional capital upon A might do so at 3¾ pounds sterling per quarter, then the additional capital upon B will regulate the market price.
Let us also assume that A produces one quarter at 3 pounds sterling, as it did heretofore. Let B likewise, as before, produce altogether 3½ quarters at an individual price of production of 6 pounds sterling for its total output. Now, if an addition of 4 pounds sterling becomes necessary upon B (including the profit) in order to produce an additional quarter, whereas it might be produced upon A at 3¾ pounds sterling, then it would naturally be produced upon A, not upon B. Let us assume, then, that this additional quarter can be produced upon B with an additional cost of production of 3½ pounds sterling. In this case 3½ pounds sterling would become the regulating price for the entire production. B would now sell its product of 4½ quarters at 15¾ pounds sterling. The cost of production of the first 3½ quarters, or 6 pounds sterling, would have to be deducted from this, also that of the last quarter, or 3½ pounds sterling, total 9½ pounds sterling. This leaves a surplus profit for rent of 6¼ pounds sterling, as against the former 4½ pounds sterling. In this case one acre of A would also yield a rent of ½ pound sterling; but not the worst soil A, but the better soil B would regulate the price of production with 3½ pounds sterling. Of course we assume here that new soil of the quality of A is not accessible in the same favorable location as that hitherto cultivated, but that either a second investment of capital upon the already cultivated soil A is required at a higher cost of production, or the cultivation of still inferior soil, such as A—1. As soon as differential rent No. II comes into action by successive investments of capital, the limits of the rising price of production may be regulated by better soil, and the worst soil, the basis of differential rent No. I, may also carry a rent. Under these circumstances all cultivated lands would pay a rent under a mere differential rent system. We should then have the following two Tables, in which we mean by the term cost of production the sum of the invested capital plus 20% profit, in other words, on every 2½ pounds sterling of capital ½ pound sterling of profit, total 3 pounds sterling.
This is the condition of affairs, before the new capital of 3½ pounds sterling is invested in B, which supplies only one quarter. After this investment has been made, we have the following condition:,
[This, again, is not quite correctly calculate. The capitalist renter of B has to meet a cost of production of 9½ pounds sterling for the 4½ quarters and besides 4½ pounds sterling in rent, a total of 14 pounds sterling; average per quarter 3½ pounds sterling. This average price of his total production thus becomes the regulating market price. According to this the rent upon A would amount to 1/9 pound sterling instead of ½ pound sterling and that upon B would remain 4½ pounds sterling, as heretofore. 4½ quarters at 3½ pounds sterling make 14 pounds sterling, and if we deduct 9½ pounds sterling of cost of production we have 4½ pounds sterling left for surplus profit. We see, then, that in spite of the required change in figures this illustration shows the way in which the better rent paying soil, by means of differential rent No. II, may regulate the price and thus transform all soil, even a hitherto rentless one, into rent paying soil.—F. E.]
The grain rent must rise, as soon as the regulating price of production of the grain rises, that is, as soon as the quarter of grain rises upon the regulating soil, or the regulating investment of capital upon one of the various kinds of soil. It is the same as though all kinds of soil had become less productive, and as though they were producing only 5-7 quarter instead of one quarter with a new investment of 2½ pounds sterling. Whatever they produce more in grain with the same investment of capital, is converted into a surplus product, in which the surplus profit and with it the rent are incorporated. Assuming that the rate of profit remains the same, the capitalist renter will have to buy less grain with his profit. The rate of profit may remain the same, if the wages do not rise, either because they are depressed to the physical minimum, below the normal value of labor-power, or because the other things needed for consumption by the laborer and supplied by the manufacturer have become relatively cheaper; or because the working day has been prolonged or has become more intensive, so that the rate of profit in other than agricultural lines of production, which, however, regulates the agricultural profit, has remained the same or has risen; or, finally, because there may be more constant and less variable capital employed in agriculture, even though the total capital invested be the same.
Now we have considered the first condition in which rent may arise upon the worst soil A without taking still worse soil under cultivation; that is, in which rent may arise out of the difference between the old individual price of this land, which was hitherto the regulating price of production, and the new, higher, price of production, at which the last additional capital with less than normal productive power upon the better soil supplies the necessary additional product.
If the additional product had to be supplied by soil A—1, which cannot produce one quarter at less than 4 pounds sterling, then the rent would have risen to one pound sterling upon A. But in this case the soil A—1 would have taken the place of A as the worst cultivated soil, and A would have risen in the scale to the place of the lowest link in the series of rent paying soils. Differential rent No. I would have changed. This case, then, is outside of the consideration of differential rent II, which arises out of the different productivity of successive investments of capital upon the same piece of land.
But aside from this, differential rent may arise upon soil A in two other ways.
In the first place, it may arise so long as the price remains unchanged (any price, even a lower one compared to former ones), if the additional investment of capital creates a surplus product, which it must always do, on first sight, and up to a certain point, upon the worst soil.
In the second place, it may arise, if the productivity of the successive investments of capital upon soil A decreases.
The assumption in either case is that the increased production is required on account of the condition of the demand.
But from the point of view of differential rent, a peculiar difficulty arises here on account of the previously developed law, according to which it is always the individual average price of production per quarter in the total production (or the total investment of capital) which acts as the determining factor. In the case of soil A, however, it is not, as it is in the case of the better soils, a question of a price of production existing outside of it, which limits the equalization of the individual price of production and the general price of production, for new investments of capital. For the individual price of production of A is precisely the general price of production regulating the market price.
Let us assume:
1) When productive power of successive investments of capital is increasing, that one acre of A will produce 3 quarters instead of 2 quarters with an investment of 5 pounds sterling of capital, corresponding to 6 pounds sterling of cost of production. The first investment of 2½ pounds sterling supplies one quarter, the second 2 quarters. In this case 6 pounds sterling of cost of production will correspond to a product of 3 quarters, so that the average price of one quarter will be 2 pounds sterling. If the 3 quarters are sold at 2 pounds sterling per quarter, then A does not produce any rent any more than it did before. Only the basis of differential rent No. II has been altered. The regulating price of production is now 2 pounds sterling instead of 3 pounds. A capital of 2½ pounds sterling produces now an average of 1½ quarters upon the worst soil instead of 1 quarter, and this is now the official productivity for all better soils with an investment of 2½ pounds sterling. A portion of the ordinary surplus product now passes over into the formation of their necessary product, just as a portion of their surplus profit now passes over into the formation of the average profit.
But if the calculation is made as it is upon the better soils, where the average calculation does not alter anything in the absolute surplus, because the general price of production is the limit of the investment of capital, then one quarter of the first investment of capital costs 3 pounds sterling and the 2 quarters of the second investment costs only 1½ pounds sterling. This would give rise to a grain rent of one quarter and a money rent of 3 pounds sterling upon A, but the 3 quarters would be sold at the old price of 9 pounds sterling all together. If a third investment of 2½ pounds sterling of capital were made at the same productivity as the second investment, then the total production would be 5 quarters at 9 pounds sterling of cost of production. If the individual average price of A should remain the regulating price, then one quarter would be sold at 1 4/5 pound sterling. The average price would have fallen once more, not through a new rise of the productivity of the third investment of capital, but merely through the addition of a new investment of capital with the same additional productivity as the second one. Instead of raising the rent upon the rent paying soils, the successive investments of capital of a higher, but sustained, fertility upon the soil A would lower the price of production and with it the differential rent upon all other soils in the same proportion, under conditions remaining the same. On the other hand, if the first investment of capital, which produces one quarter at 3 pounds sterling, should remain in force by itself, then 5 quarters would be sold at 15 pounds sterling, and the differential rent of the later investments of capital upon soil A would amount to 6 pounds sterling. The additional capital per acre of soil A, whatever might be the manner of its application, would be an improvement in this case, and it would make the original portion of capital more productive. It would be nonsense to say that 1/3 of the capital had produced one quarter and the other 2/3 four quarters. For 9 pounds sterling per acre would always produce 5 quarters, while 3 pounds sterling would produce only one quarter. Whether a rent would arise here or not, whether a surplus profit would be made or not, would depend wholly upon circumstances. Normally the regulating price of production would fall. This would be the case, if this improved, but more expensive cultivation of soil A should take place only for the reason that it takes place upon all better soils, in other words, if a general revolution in agriculture should occur. And the assumption in that case would be that this soil is worked with 6 or 9 pounds sterling instead of 3 pounds. This would apply particularly, if the greater part of the cultivated acres of soil A, by which the bulk of the supply of this country is furnished, should be handled by this new method. But if the improvement should extend only to a small portion of the area of A, then this better cultivated portion would yield a surplus profit, which the landlord would be quick to transform wholly or in part into rent and fix permanently in the form of rent. In this way a rent might be gradually formed upon all soil of the A quality, in proportion as more and more of the area of this soil is taken under cultivation by the new method, and the surplus productivity might be confiscated wholly or in part, according to market conditions. The equalization of the price of production of soil A to the average price of its product at an increased investment might thus be prevented by the fixation of the surplus profit of this increased investment of capital in the form of rent. If so, this would be once again an illustration of the way in which the transformation of surplus profit into ground-rent, in other words, the intervention of property in land, raises the price of production, as we have already noticed in the case of the better soils upon which the productivity of the additional capitals decreased, so that here the differential rent would not be a mere result of the difference between the individual and the general price of production. It would prevent, in the case of soil A, the identification of both prices in one, because it would interfere with the regulation of the price of production by the individual price of production of A. It would maintain a higher price of production than the necessary one and thus create a rent. Even if grain were freely imported from abroad, the same result could be brought about or perpetuated by compelling the tenants to use soil capable of competing in the raising of grain at the price of production regulated from abroad for other purposes, for instance for pastures, so that only rent paying soils could raise grain, that is, only soils whose individual average price of production per quarter would be below the price of production determined from abroad. On the whole it may be assumed that the price of production will fall, but not to the level of its average. Rather will it be higher than the average, but below the price of production of the worst cultivated soil A, so that the competition of new lands of the class A is held back.
2) When the productive power of the additional capitals is decreasing, let us assume that soil A—1 can produce the additional quarter only at 4 pounds sterling, whereas soil A produces it at 3¾ pounds sterling, that is, more cheaply than the lesser soil, but still more dearly than the quarter produced by the first investment of capital upon it. In this case the total price of the two quarters produced upon A would be 6¾ pounds sterling, and the average price per quarter 3 3/8 pounds sterling. The price of production would rise, but only by 3/8 pounds sterling, whereas it would rise by another 3/8, or to 3¾ pounds sterling, if the additional capital were invested upon new soil, which could produce at 3¾ pounds sterling and thus bring about a proportional raise of all other differential rents.
The price of production of 3 3/8 pounds sterling per quarter of A would thus be brought to the figure of its average price of production with an increased investment of capital, and would be the regulating price; it would not yield any rent, because it would not produce any surplus profit.
However, if this quarter, produced by the second investment of capital, were sold at 3¾ pounds sterling, then the soil A would yield a rent of ¾ pound sterling, and it would do so upon all acres of A, even those with no additional investment of capital, which would still produce one quarter at 3 pounds sterling. So long as any uncultivated fields of A remain, the price could rise only temporarily to 3¾ pounds sterling. The competition of new fields of A would hold the price of production at 3 pounds sterling, until all lands of the A class would be exhausted, whole favorable location would enable them to produce a quarter at less than 3¾ pounds sterling. This would be a likely assumption, although the landlord will not let any tenant have any land free of rent, if one acre of A pays rent.
It would depend once more upon the greater or smaller generalization of the second investment of capital in the available soil A, whether the price of production shall be brought down to an average or whether the individual price of production of the second investment of capital shall be regulating at 3¾ pounds sterling. This last case will take place only when the landlord gets time to fix the surplus profit, which would be made until the demand would be satisfied at the price of 3¾ pounds sterling, permanently in the form of rent.
Concerning the decreasing productivity of the soil with successive investments of capital, see Liebig. We have seen that the successive decrease of the surplus productive power of the investments of capital always increases the rent per acre, so long as the price of production remains the same, and this may take place even when the price of production is falling.
But in a general way the following remarks may be made.
From the point of view of the capitalist mode of production there is always a relative increase in the price of products, when a product cannot be secured unless an expense is incurred, a payment made, which did not have to be met formerly. For by a reproduction of the capital consumed in production we mean only the reproduction of values, which were represented by certain means of production. Natural elements passing into production as agencies, no matter what role they play in production, do not enter into the problem as parts of capital, but as free gifts of nature to capital, that is, as a free natural productivity of labor, which, however, appears as a productive power of capital, as do all other productive powers under the capitalist system. Therefore, if such a natural power, which originally does not cost anything, takes part in production, it does not count in the determination of prices, so long as the product supplied by its help suffices for the demand. But if a larger product is demanded than that which can be supplied by the help of this natural power, so that the additional product must be created without this power, or by assisting it with human labor power, then a new additional element enters into capital. A relatively larger investment of capital is required for the purpose of securing the same product. All other circumstances remaining the same, the price of the product is raised.
(From a manuscript "Started about the Middle of February, 1876.")
Differential Rent and Rent as a mere interest on capital invested in the soil.
The so-called permanent improvements—which change the physical, and in part also the chemical, condition of the soil by means of operations requiring an expenditure of capital, and which may be regarded as an incorporation of capital in the soil—nearly all amount to giving to a certain piece of land in a certain limited locality such qualities as are possessed by some other piece of land at some other locality, sometimes quite near to the other one, by nature. One piece of land is by nature level, another has to be leveled; one possesses natural drainage, another has to be drained artificially; one has naturally a deep top soil, another must be artificially deepened; one clay soil is naturally mixed with a proper modicum of sand, another has to be treated for the purpose of making it so; one meadow is irrigated or moistened naturally, another requires labor to get it into this condition, or in the language of bourgeois economists, it requires capital.
It is indeed a very exhilarating theory, which calls rent by the name of interest in the case of one piece of land, whose comparative advantages have been acquired, whereas it does not do so in the case of a piece of land which has the same advantages naturally. (As a matter of fact, this is distorted in practice into saying that because rent really coincides in the one case with interest, it must falsely be called interest in cases where this is positively not the case.) However, the land yields a rent after the investment of capital, not because capital has been invested, but because the investment of capital makes this land more productive than it was formerly. Assuming that all land requires this investment, then every piece of land which has not received it must first pass through this stage, and the rent which the soil already endowed with capital yields (the interest which it may pay in a certain case), constitutes as much a differential rent as though it possessed this advantage by nature and the other land had to acquire it artificially.
This rent, which may be resolved into pure interest, becomes altogether a differential rent, as soon as the invested capital is sunk in the land. Otherwise the same capital would have to appear twice as capital.
It is one of the most amusing incidents, that all opponents of Ricardo, who combat the determination of value exclusively by labor, criticize in the case of differential rent arising from differences of soil the determination of value by nature instead of by labor. But at the same time they credit the location of the land with this determination, or perhaps, even more, the interest on capital sunk in the land during its cultivation. The same labor produces the same value in the product created during a certain time. But the magnitude, or the quantity, of this product, and consequently also that portion of value, which falls upon some aliquot part of this product, depends only upon the quantity of the product, so long as the quantity of labor is given, and the quantity of the product, in its turn, depends upon the productivity of the given quantity of labor, not upon the size of this quantity. It is immaterial, whether this productivity is due to nature or to society. Only in the case in which the productivity costs labor, and consequently capital, does it increase the cost of production by a new element, but this is not the case with nature alone.
IN the analysis of ground-rent we proceeded from the assumption, that the worst soil does not pay any ground-rent, or, to put it more generally, that only such land pays ground-rent as produces at an individual price of production which is below the price of production regulating the market, so that in this way a surplus profit arises which is transformed into rent. It should be remembered that the law of differential rent as such is entirely independent of the correctness or incorrectness of this assumption.
Let us call the general price of production, by which the market is regulated, P. Then P coincides for the product of the worst soil A with its individual price of production; that is to say, its price pays for the constant and variable capital consumed in its production plus the average profit (profits of enterprise plus interest).
The rent amounts to zero in this case. The individual price of production of the next better soil B is equal to P', and P is larger than P'; that is P pays more than the actual price of production of the product of the soil B. Now let us assume that P minus P' is d; in this case d, the excess of P over P'. is a surplus profit, which the tenant realises upon class B of soil. This d is converted into rent, which must be paid to the landlord. Let the actual price of production of the third class of soil, C, be P'', and P minus P'' equal to 2d; then this 2d is converted into rent; likewise let the individual price of production of the fourth class of soil, D, be P'', and P minus P'' equal to 3d, which is converted into ground-rent, etc. Now take it that the assumption of a rent upon soil A equal to zero and of a price of production equal to P plus zero is wrong. Rather let the class A of soil also pay a rent, equal to r. In that case we come to two conclusions.
First: The price of the product of the land of class A would not be regulated by its price of production, but by containing a surplus above it would come to P+r. For assuming the capitalist mode of production to be in a normal condition, that is, assuming that the surplus r, which the tenant pays to the landlord, is neither a deduction from wages nor from the average profit of capital, it can be paid only by selling the product above its price of production, so that a surplus profit arises, which the tenant might keep if he did not have to turn it over to the landlord as a rent. In that case the regulating market price of the total product of all soils existing on the market would not be the price of production, which capital generally makes in all spheres of production, which is a price equal to the cost of production plus the average profit, but it would be the price of production plus the rent, P+r, and not merely P. For the price of the product of soil A expresses generally the limit of the regulating general market price, at which the total product can be supplied, and to the extent it regulates the price of this total product.
Secondly: Nevertheless the law of differential rent would not be suspended in this case, although the general price of the products of the soil would be essentially modified. For if the price of the product of class A should be P + r, and this should be the general market price, than the price of class B would be likewise P + r, and so would be the price of classes C, D, etc. But since P—P' = d, in the case of class B, it is evident that (P + r)—(P' + r) is also equal to d, and P—P'' in the case of class C would mean that (P + r)—(P'' + r) is equal to 2d, and P—P'' in the case of class D would mean that the formula (P + r)—(P'' + r) is equal to 3d, and so forth. In other words, the differential rent would still be regulated by the same law as before, although the rent would contain an element independent of this law and would show a general increase in the same way as would the price of the products of the soil. It follows, then, that no matter what may be the condition of the rent upon the least fertile lands, the law of differential rent is not only independent of it, but that also the only manner of viewing differential rent in keeping with its character, is to place the rent of class A at zero. Whether this is zero or larger than zero, is immaterial, so far as the differential rent is concerned, and is not considered in the calculation.
The law of differential rent, then, is independent of the results of the following investigations.
If we now go more deeply into the question, as to what is the sound basis of the assumption that the product of the worst soil A does not pay any rent, we necessarily get the answer: If the market price of the products of the land, say of grain, reaches such a level that an additional investment of capital in the class A of soils pays the ordinary price of production and yields the ordinary average profit to the capitalist, then this is sufficient incentive for investing additional capital in soil of class A. In other words, this condition satisfies the capitalist that new capital may be invested at the average profit and employed in the normal manner.
It should be noted here that in case, likewise, the market price must be higher than the price of production of A. For as soon as the additional supply has been created, the relation between supply and demand has been altered. Formerly the supply was insufficient, now it is sufficient. So the price must fall . In order to fall, it must have been higher than the price of production of A. But the lesser fertility of the newly added soils of class A brings it about that the price does not fall quite as low as it was at the time when the price of production of the class B regulated the market. The price of production of A forms the limit, not for the temporary, but for the relatively permanent rise of market price.
On the other hand, if the newly cultivated soil is more fertile than that of the hitherto regulating class A, yet only to the extent of satisfying the increased demand, then the market price remains unchanged. The inquiry as to whether the lowest class of land pays any rent, nevertheless coincides also in this case with our present inquiry, for here again the assumption that class A does not pay any rent must be explained out of the fact that the market price satisfies the capitalist tenant that this price will cover the invested capital plus the average profit, in brief, that the market price will cover the price of production of his commodities.
At any rate, the capitalist tenant can cultivate soil of class A under these conditions, in so far as he has any decision in this matter in his capacity as a capitalist. The prerequisite for a normal self-expansion of capital is now present upon soil A. But the fact that the average conditions of self- expansion would now enable the capitalist tenant to invest capital in soil of the class A if he did not have to pay any rent, does not imply that such land is at the disposal of the capitalist without any further ceremony. The circumstance that the capitalist tenant might invest his capital at the average profit, if he did not have to pay any rent, is no incentive for the landlord to lend his land to the tenant gratis and be so philanthropic as to grant free credit to this friend in business. To assume that this would be done would be to do away with private property in land, for its existence is precisely an obstacle to the investment of capital and to the liberal self-expansion of capital through land. This obstacle does not fall by any means before the simple reflection of the tenant that the condition of grain prices would enable him to get the average profit out of an investment of capital in class A of soil, if he did not have to pay any rent, in other words, if he could proceed as though private property in land did not exist. But differential rent is based upon the fact that private property in land exists, that the land monopoly is an obstacle of capital, for without it the surplus profit would not be converted into ground-rent and would not fall into the hands of the landlord instead of those of the capitalist tenant. Private property in land remains as an obstacle, even where differential rent as such is not paid, that is, upon soils of the class A. If we observe the cases, in which capital may be invested in the land, in a country with capitalist production, without paying any rent, we shall find that they imply, all of them, a practical abolition of private property in land, even if not a legal abolition, a condition which is found only under very definite circumstances, which are in their very nature accidental.
First: This may take place when the landlord is himself a capitalist, or the capitalist himself a landlord. In this case he may himself exploit his land, as soon as the market price shall have risen sufficiently to enable him to get the price of production, that is, cost of production plus the average profit, out of what is now land of class A. But why? Because for himself private property in land is not an obstacle to the investment of his capital. He can treat his land simply as an element of nature, and can listen wholly to considerations of expediency concerning his capital, to capitalist considerations. Such cases occur in practice, but only as exceptions. Just as the capitalist cultivation of the land presupposes the separation of the active capital from property in land, so it excludes as a rule the self-management of property in land. It is evident, that the opposite is only an exception. If the increased demand after grain requires the cultivation of a larger area of land of the class A than is in the hands of self-managing proprietors, in other words, if a part of such land must be rented in order to be cultivated at all, then this hypothetical conception of the obstacle created by private property in land for capital and its investment at once collapses. It is an absurd contradiction to start out from the differentiation between capital and land, capitalist tenants and landlords, which corresponds to the capitalist system, and then to turn around and assume that the landlords, as a rule, exploit their own land in all cases and to the full extent, where capital would not get a rent out of the cultivation of the soil, if private property in land were not separate and distinct from it. (See the passage from Adam Smith concerning mining rent, quoted further along.) Such an abolition of private property in land is accidental. It may or may not occur.
Secondly: In the total area of some rented land there may be certain portions, which do not pay any rent under the existing condition of market prices, so that they are virtually loaned gratis, although the landlord does not look upon it in that light, because he does not consider the special rent of some particular patches in the total rental of his rented land. In such a case, so far as such patches are exempt from rent, private property as an obstacle to the investment of capital is obliterated for the capitalist tenant, and his contract with the landlord implies as much. But he does not pay any rent for such patches for the simple reason that he pays rent for the land to which they belong. The assumption in this case deals with a combination, in which the worse land of the class A is not an independent resort by which to supply the missing product, but rather an inseparable part of some better land. But the case to be investigated is precisely that in which certain pieces of land of class A are independently cultivated, and must be rented separately under the general conditions of capitalist production.
Thirdly: A capitalist tenant may invest additional capital upon the same rented land, although the additional product secured in this way nets him only the price of production at the prevailing market prices, so that he gets only the average profit, but does not get any surplus profit with which to pay rent. In that case he pays ground-rent with a portion of the capital invested in the land, but does not pay any ground-rent with the remainder of his invested capital. How little this assumption solves the problem in question, is seen by the following considerations: If the market price (and the fertility of the soil) enables him to obtain a larger yield with his additional capital, so that this additional capital secures for him not merely the price of production, the same as his old capital, but also a surplus profit, then he pockets this surplus profit himself so long as his present lease runs. But why? Because the obstacle of private property has been eliminated for his capital during the time of his lease. But the simple fact, that new and inferior soil must be independently cleared and independently rented, in order to secure this surplus profit for him, proves that the investment of additional capital upon the old soil no longer suffices to fill the required increased demand. One assumption excludes the other. It is true that one might say: The rent of the worst soil A is itself a differential rent compared either to the land cultivated by the owner himself (which is an accidental exception), or with the additional investment of capital upon the old leaseholds which do not produce any rent. However, this would be a differential rent, which would not arise from the difference in fertility of the various classes of soil, and which would, therefore, not be based upon the assumption that class A of soil does not pay any rent and sells its product at the price of production. And furthermore, the question as to whether additional investments of capital upon the same leasehold produce any rent or not is quite immaterial for the question, whether the new soil of class A, which is about to be taken under cultivation, pays any rent or not, just as it is immaterial for the organization of a new and independent manufacturing business whether another manufacturer of the same line of business invests a portion of his capital in interest-bearing papers, because he cannot use all of it in his business; or whether he makes certain improvements, which do not secure the full profit for him, but at least more than interest. This is immaterial for him. The new establishments must produce the average profit and are built on this assumption. It is true that the additional investments upon the old leaseholds and the additional cultivation of new land of class A mutually restrict one another. The limit, up to which additional capital may be invested upon the same leasehold under less favorable conditions of production, is determined by the new competing investments upon soil of class A; on the other hand, the rent which may be produced by this class of soil is limited by the competing additional investments of capital upon the old leaseholds.
But all these false subterfuges do not solve the problem, which in simple language consists of this: Assuming the market price of grain (which shall be typical of all products of the soil in this inquiry) to be sufficient for the purpose of taking portions of soil of class A under cultivation and securing the price of production (cost of production plus average profit) by means of the capital invested in these new fields, in other words, assuming the conditions for the normal self-expansion of capital upon the soil A to be existent, is this sufficient cause for making the investment of such capital really possible? Or must the market price raise to a point where even the worst soil A will produce a rent? Does the monopoly of the land owner place an obstacle in the way of the capitalist who wants to invest, an obstacle which would not exist from the capitalist's point of view without that monopoly in land? The conditions, under which this question is put, show that the question as to whether capital may really be invested in soil of A class A, which would produce the average profit, but no rent is not at all solved by the fact that, for instance, additional investments upon the old leaseholds may exist, which produce only the average profit but no rent at the prevailing market prices. The question still remains unanswered. The fact that the additional investments, which do not produce any rent, do not satisfy the demand is proved by the necessity of taking new land under cultivation out of class A. If the additional cultivation of land of class A takes place only to the extent that it produces a rent, that is, more than the price of production, then only two cases are possible. Either the market price must be such that even the last additional investment of capital upon the old leaseholds produce a surplus profit, which may be pocketed by the tenant or by the landlord. This raise in price and this surplus profit of the last additional investment of capital would then be a result of the fact that soil A cannot be cultivated without producing a rent. For if the price of production were sufficient to bring about a cultivation of land A, if the mere average profit were enough for that, then the price would not have risen to this point and the competition of new lands would have manifested itself as soon as they could produce just this price of production. The additional investments upon the old leaseholds, which do not produce any rent, would then have to compete with the investments upon soil A, which likewise do not produce any rent. Or, the last investments upon the old leaseholds may not produce any rent, but still the market price may have risen sufficiently to make the cultivation of soil A possible and to get a rent out of it. In this case, the additional investment of capital, which does not produce any rent, would be possible only for the reason that soil A could not be cultivated until the market price enabled it to produce a rent. Without this condition its cultivation would have begun when prices stood lower; and those later investments of capital upon the old leaseholds, which require a high market price in order to produce the ordinary profit without any rent, could not have taken place. For they produced only the average profit at the high market prices. At a lower market price, which would have become the regulating market price of production from the time that soil A would have been taken under cultivation, those later investments upon the old leaseholds could not have produced this average profit, and this means that the investments would not have been made under such conditions. In this way, the rent of soil A would indeed form a differential rent, compared to the investments upon the old leasehold, which do not produce any rent. But the fact that the area of A forms such a differential rent is but a consequence of the condition that this area is not taken under cultivation at all, unless it produces a rent. The first condition in this case is that the necessity of this rent, which is not based upon any differences of soil, must exist and from a barrier to the possible investment of additional capitals upon the old leaseholds. In either case, the rent of soil A would not be a simple consequence of the rise in grain prices, but on the contrary, the fact that the worst soil must produce a rent in order to become available for cultivation would be the cause of a rise in the price of grain to the point at which this condition may be fulfilled.
The differential rent has this peculiarity, that the landlord merely catches the surplus profit which would otherwise go into the pocket of the tenant, and which the tenant may actually pocket under certain circumstances during the time of his lease. The property in land is here merely the cause of the transfer of a portion of the price of the product, which arises without any active participation of the landlord in production and resolves itself into surplus profit. This transfer of a portion of the price from one individual to another, from the capitalist to the landlord, is due to private property in land. But private ownership of land is not the cause which creates this portion of the price, or brings about the rise in the price, upon which it is conditioned. On the other hand, if the worst soil A cannot be cultivated—although its cultivation would yield the price of production—until it produces something in excess of the price of production, then private property in land is the creative cause of this rise in price. Private property in land itself has created rent. This fact is not altered, if, as in the second case mentioned, the rent now produced by soil A is a differential rent compared with the last additional investment of capital upon the old leaseholds, which pays only the price of production. For the circumstance, that soil A cannot be cultivated, until the regulating price of production has risen high enough to admit of a rent for soil A, is in this case the sole reason of the rise of the market price to that level, which enables the last investments upon the old leaseholds to secure the price of production, by means of which a rent is obtained from soil A. The fact that this soil has to pay any rent at all is in this case the cause which creates a differential rent between soil A and the last investment upon the old leaseholds.
Speaking in general of the fact that class A of soil, under the assumption that the price of grain is regulated by the price of production, does not pay any rent, we mean rent in the categorical sense of the word. If the tenant pays a rent, which is either a deduction from the normal wages of his laborers, or from his own normal average profit, then he does not pay a rent which is clearly distinguished from wages and profit in the price of his product. We have already indicated that this takes place continually in practice. To the extent that the wages of the agricultural laborers in a certain country are continually depressed below the normal level of wages, so that a part of the wages, being deducted from them, passes generally over into the rent, this is no exception for the tenant upon the worst kind of soil. In the same price of production, which makes the cultivation of the worst soil possible, these low wages already form a constituent element, and the sale of his product at the price of production does not enable the tenant upon this soil to pay any rent. The landlord might rent his land also to some laborer, who may be satisfied to pay all or a part of that in the form of rent which he may get in the selling price above the wages. In all these cases, however, no real rent is paid, but merely lease money. But wherever conditions correspond to the capitalist mode of production, rent and lease money must coincide. It is precisely this normal condition which must be analyzed here.
A reference to colonial conditions proves even less for our problem than do the above-mentioned cases, in which actual investments of capital under conditions of capitalist production may take place upon the land without producing any rent. What makes a colony of a colony—we have in mind only true agricultural colonies—is not merely the vast area of fertile lands in a natural state. It is rather the circumstance that these lands are not appropriated, are not brought under private ownership. It is this which makes the enormous difference between the old countries and the colonies, so far as the land is concerned, it is this nonexistence, legal or actual, of private property in land, as Wakefield remarks correctly;129 and long before him the elder Maribeau, the physiocrat, and other older economists had discovered. It is quite immaterial here, whether the colonists take possession of the land without further ceremony, or whether they pay to the state a fee for a valid title to the land under the title of a nominal price of land. It is also immaterial, that already settled colonists may be legally the owners of land. In fact the land ownership is not an obstacle to the investment of capital here, nor to the employment of labor upon land without any capital. The setting of a part of the land by the established colonists does not prevent the newcomers from employing their capital or their labor upon new land. Therefore, if we are asked to investigate the influence of private ownership of land upon the prices of the products of land and upon the rent in places where such ownership is an obstacle to the investment of capital, it is very absurd to speak of free bourgeois colonies, in which neither the capitalist mode of production in agriculture, nor the form of private property belonging to it, exist, and in which the latter does not exist at all in fact. Ricardo is an illustration of this in his chapter on ground-rent. In the beginning he says that he is going to investigate the effect of the appropriation of land upon the value of the products of the soil, and immediately after that he takes for an illustration the colonies, assuming that real estate exists in a relatively elementary form and that its exploitation is not limited by the monopoly of private ownership in land.
The mere legal property in land does not create any ground-rent for the landlord. But it gives him the power to withdraw his land from exploitation until the economic conditions permit him to utilize it in such a way that it will yield him a surplus, whenever the land is used either for agriculture proper or for other productive purposes, such as buildings, etc. He cannot increase or decrease the absolute quantity of its field of employment, but he can do so with its marketable quantity. For this reason, as Fourier has already remarked, a characteristic fact in all civilized countries is that a comparatively considerable portion of the land always remains uncultivated.
Assuming, then, that the demand requires the opening up of new lands, and that these lands are less fertile than those hitherto cultivated, will the landlord rent such lands for nothing, just because the market price of the products of the soil has risen high enough to pay to the tenant the price of production on his investment in this land and enable him to reap the average profit? By no means. The investment of capital must net him a rent. He does not rent his land until he can get lease money for it. Therefore the market price must have risen above price of production to the point P+r, so that a rent can be paid to the landlord. Since the real estate does not net any income, according to our assumption, until it is rented, so that it is economically valueless until then, a small rise of the market price above the price of production will suffice to bring the new land of the worst class upon the market.
The question is now: Does it follow from the ground-rent of the worst soil, which cannot be derived from any difference of fertility, that the price of the products of the soil is necessarily a monopoly price in the ordinary meaning of the term, or a price, into which the rent enters like a tax, only with the distinction that the landlord levies the tax instead of the state? It is a matter of course that this tax has certain definite economic limits. It is limited by the additional investments of capital upon the old leaseholds, by the competition of the products of the soil of foreign countries, which are imported free of duty, by the competition of the landlords among themselves, and finally by the wants and the solvency of the consumers. But this is not the point. The point is whether the rent paid by the worst soil passes into the price of its products, which price regulates the general market price according to our assumption, and whether it enters into this price in the same way as a tax enters into the price of commodities which are dutiable, in other words, whether this rent enters into the price as an element independent of its value.
This does not necessarily follow by any means, and the contention that it does has been made only because the distinction between the value of commodities and their price of production had not been understood up to the present. We have seen that the price of production of a commodity is by no means identical with its value, although the prices of production of all commodities, considered as a whole, are regulated only by their total value, and although the movement of the prices of production of the various kinds of commodities, taking all other circumstances as equal, is controlled exclusively by the movement of their values. It has been demonstrated that the price of production of a commodity may stand above or below its value, and coincides but rarely with its value. Hence the fact that the products of the soil are sold above their prices of production does not prove by any means that they are sold above their values. Neither does the fact, that the products of industry are, on an average sold at their prices of production, prove that they are sold at their values. It is possible that the products of agriculture are sold above their price of production and below their value, while many products of industry bring the price of production only because they are sold above their value.
The relation of the price of production of a certain commodity to its value is exclusively determined by the proportion, in which the variable part of their capital with which it is produced stands to its constant part, or by the organic composition of the capital producing it. If the composition of the capital in a certain sphere of production is lower than that of the social average capital, in other words, if its variable portion, which is used for wages, is relatively larger than its constant portion, which is invested in material requirements of production, compared to the social average capital, then the value of its products must stand above their price of production. In other words, such a capital, employing more living labor, produces at the same rate of exploitation of labor more surplus-value, and therefore more profit, than an equally larger aliquot portion of the social average capital. The value of its products stands, therefore, above their price of production, since this price of production is equal to the cost of production plus the average profit, and the average profit is lower than the profit produced in these commodities. The surplus-value produced by the social average capital is smaller than that produced by a capital of this lower composition. On the other hand, when the capital invested in a certain sphere of production is of higher than average composition, then the case is reversed. The value of the commodities produced by it stands below their price of production, and this is generally the case with the products of the most highly developed industries.
If the capital in a certain sphere of production is of a lower composition than the social average capital, then this is primarily an expression of the fact that the productive power of the social labor in this particular sphere of production is below the average; for the prevailing degree of productive power shows itself in the relative preponderance of the constant over the variable capital, or in the continual decrease of the portion used in a certain capital for wages. On the other hand, if the capital in a certain sphere of production is of a higher composition, then it expresses a development of the productive power above the average.
Leaving aside the work of artists, which is naturally excluded from our discussion, it is a matter of course that different spheres of production require different proportions of constant and variable capital according to their technical peculiarities, and that living labor must occupy more room in some, less room in others. For instance, in the extractive industries, which must be clearly distinguished from agriculture, raw material as an element of constant capital is wholly absent, and even the auxiliary material plays only rarely an important role in them. Nevertheless the progress of development may be measured also in them by the relative increase of the constant over the variable capital.
If the composition of the capital in agriculture proper is lower than that of the social average capital, then this would be on its face an expression of the fact that in countries with a developed production agriculture has not progressed as far as the industries which work up its products. This fact could be explained, aside from all other economic circumstances which are of paramount importance, from the earlier and more rapid development of mechanical sciences, and especially by their application, compared to the later and partly quite recent development of chemistry, geology and physiology, and particularly their application to agriculture. For the rest it is an indubitable and long known fact130 that also the progress of agriculture expresses itself steadily in a relative increase of the constant over the variable capital. Whether in a certain country with capitalist production, for instance in England, the composition of the agricultural capital is lower than that of the social average capital, is a question which can be decided only by statistics, and which need not be discussed in detail for the purposes of this inquiry. So much is theoretically accepted that the value of the agricultural products cannot be higher then their price of production unless this condition obtains. In other words, a capital of a certain size in agriculture produces more surplus-value, or what amounts to the same, sets in motion and commands more surplus-labor (and with it employs more living labor) than a capital of the same size in industry of social average composition.
This assumption, then, suffices for that form of rent which we are analyzing here, and which can take place only so long as this assumption holds good. Wherever this assumption falls, the form of rent corresponding to it falls likewise.
However, the mere fact of an excess of the value of agricultural products over their price of production would not suffice in itself for the explanation of the existence of a ground-rent, which is independent of differences of fertility or of successive investments of capital upon the same land, a rent which is to be clearly differentiated from differential rent, and which we way therefore call absolute rent. Quite a number of manufactured products have the peculiarity that their value is higher than their price of production, and yet they do not produce any excess above the average profit, a surplus profit, which might be converted into rent. On the other hand, the existence and meaning of the price of production and of the average rate of profit which it implies rest upon the fact that the individual commodities are not sold at their value. The prices of production arise from an equalization of the values of commodities. This equalization after restoring their respective capital values to the various spheres of production, in which they were consumed, distributes the entire surplus-value, not in proportion as it has been produced in the individual spheres of production and incorporated in their commodities, but in proportion to the magnitude of the capital invested in them. Only in this way is an average profit brought about and with it the price of production, whose characteristic element this average profit is. It is the continual tendency of the capitals to bring about this equalization in the distribution of the surplus-value produced by the total capital by means of competition, and to overcome all obstacles to this equalization. This implies the tendency to permit only such surplus profits as arise under all circumstances, not from differences between the values and the prices of production of the commodities, but rather from the general prices of production, which regulates the market and from the individual prices of production, which differ from it. In other words, only such surplus profits are tolerated, which occur within a certain sphere of production and not such as occur between two different spheres of production, so that they do not touch the general prices of production of the different spheres, or their general rate of profit, but which rather have for their basis the conversion of values into prices of production and into an average rate of profit for the whole. This condition rests, however, as previously explained, upon the continually changing proportional distribution of the total social capital among the various spheres of production, upon the unremitting emigration and immigration of capitals, upon their transfer from one sphere to another, in short upon their free movement between the various spheres of production, which represent so many available fields of investment for the independent constituents of the total capital of society. And the other assumption in this case is that no barrier, or at least only a temporary and accidental barrier, interferes with the competition of the capitals, for instance in some sphere of production, in which the value of the commodities is higher than their prices of production, or where the produced surplus-value is larger than the average profit, so that nothing prevents the reduction of value to a price of production and the proportional distribution of the excess of surplus-value of this sphere of production among all spheres exploited by capital. But if the reverse happens, if capital meets some foreign power, which it cannot overcome, or which it can but partially overcome, and which limits its investment it certain spheres, admitting it only under conditions which wholly or partly exclude that general equalization of surplus-value to an average profit, then it is evident that the excess of the value of commodities in such spheres of production over their prices of production would give rise to a surplus profit, which could be converted into rent and made independent as such compared to profit. Such a foreign power is private ownership of land, when it builds obstacles against capital in its endeavor to invest in land, such a power is the landlord in his relation to the capitalist.
Private property in land is then the barrier which does not permit any new investment of capital upon hitherto uncultivated or unrented land without levying a tax, in other words, without demanding a rent, although the land to be taken under new cultivation may belong to a class which does not produce any differential rent, and which, were it not for the intervention of private property in land, might have been cultivated at a small increase in the market price, so that the regulating market price would have netted to the cultivator of this worst soil nothing but his price of production. But on account of the barrier raised by private property in land, the market price must rise to a point, where the land can pay a surplus over the price of production, in other words, where it can pay a rent. Now, since the value of the commodities produced by agricultural capital is higher than their price of production, as we have assumed, this rent (with the exception of one case which we shall discuss immediately) forms the excess of the value over the price of production, or a part of it. Whether the rent consumes the entire difference between the value and the price of production, or only a greater or smaller part of it, will depend wholly upon the relation between supply and demand and upon the area of the new land taken in cultivation. So long as the rent is not equal to the excess of the value of agricultural products over their price of production, a portion of this excess would always enter into the general equalization and proportional distribution of all surplus-value among the various individual capitals. As soon as the rent is equal to the excess of the value over the price of production, this entire portion of the surplus-value over and above the average profit would be withdrawn from the equalization. But whether this absolute rent is equal to the whole surplus of value over the price of production, or only equal to a part of it, the agricultural products would always be sold at a monopoly price, not because their price would exceed their value, but because their price would be equal to their value, or because their price would be lower than their value but higher than their price of production. Their monopoly would consist in the fact that they are not, like other products of industry whose value is higher than the general price of production, leveled to the plane of the price of production. Since one portion of the value and of the price of production is an actually existing constant element, namely the cost price, representing the capital k consumed in production, their difference consists in the other, the variable, portion, the surplus-value, which amounts to p in the price of production, that is, to the profit which is equal to the total surplus-value calculated on the social capital and on every individual capital as an aliquot part of the social capital. This profit equals in the value of commodities the actual surplus-value created by this particular capital, and forms an integral part of the value of commodities created by this capital. If the value of commodities is higher than their price of production, then the price of production is k+p, the value k+p+d, so that p+d represents the surplus-value contained in it. The difference between the value and the price of production is, therefore, equal to d, the excess of the surplus-value created by this capital over the surplus-value assigned to it by the average rate of profit. It follows from this that the price of agricultural products may stand higher than their price of production, without reaching up to their value. It follows, furthermore, that up to a certain point a permanent increase in the price of agricultural products may take place, before their price reaches their value. It follows also that the excess in the value of agricultural products over their price of production can become a determining element of their general market price only because there is a monopoly in private ownership of land. If follows, finally, that in this case the increase in the price of the product is not the cause of the rent, but rather the rent is the cause of the increase in the price of the product. If the price of the product of the unit of the worst soil is equal to P+r, then all differential rents will rise by the corresponding multiples of r, since the assumption is that P+r becomes the regulating market price.
If the average composition of the non-agricultural capital were 85c+15v, and the rate of surplus-value 100%, then the price of production would be 115. If the composition of the agricultural capital were 75c+25v, and the rate of surplus-value the same, then the value of the agricultural product and the regulating market price would be 125. If the agricultural and the non-agricultural product should be leveled to the same average price (we assume for the sake of brevity that the total capital in both lines of production is equal), then the total surplus-value would be 40, or 20%, upon the 200 of capital. The product of the one as of the other would be sold at 120. In the equalization into the prices of production the average market prices of the non-agricultural capital would stand above, and those of the agricultural capital below their value. If the agricultural products were sold at their full value, they would stand higher by 5, and the industrial products lower by 5, than they do in the equalization. If the market conditions do not permit the sale of the agricultural products at their full value, at the full surplus above the price of production, then the result hangs between the two extremes; the industrial products would be sold a little above their value, and the agricultural products a little above their price of production.
Although the private ownership of land may drive the price of the products of the soil above their price of production, it does not depend upon this ownership, but upon the general condition of the market, to what extent the market price shall exceed the price of production and approach the value, and to what extent the surplus-value created in agriculture over and above the given average profit shall either be converted into rent or enter into the general equalization of the surplus-value to an average profit. At any rate this absolute rent, which arises out of the excess of value over the price of production, is but a portion of the agricultural surplus-value, a conversion of this surplus-value into rent, its appropriation by the landlord; so does the differential rent arise out of the conversion of surplus-profit into rent, its appropriation by the landlord, under an average price of production which acts as a regulator. These two forms of rent are the only normal ones. Outside of them the rent can rest only upon an actual monopoly price, which is determined neither by the price of production nor by the value of commodities, but by the needs and the solvency of the buyers. Its analysis belongs in the theory of competition, where the actual movement of market-prices is considered.
If all the land suitable for agriculture in a certain country were leased—assuming the capitalist mode of production and normal conditions to be general—then there would not be any soil that would not pay any rent; but there might be certain parts of some capitals invested in land that might not produce any rent. For as soon as the land has been rented, private property in land ceases to be an absolute barrier against the investment of the necessary capital. Still it continues to act as a relative barrier even after that, to the extent that the appropriation of the capital incorporated in the soil by the landlord draws very definite lines for the activity of the tenant. Only in this case would all rent be converted into a differential rent, although this would not be a differential rent determined by any differences in the fertility of the soil, but rather by differences between the surplus profits arising from the last investments of capital in a certain soil and the rent paid for the lease of the soil of the worst quality. Private property in land serves as an absolute barrier to the investment of capital only to the extent that it exacts a tribute for the permission of giving access to the land. As soon as this access has been gained, it can no longer set any absolute obstacles in the way of the size of any investment of capital in a certain soil. The building of houses meets a barrier in the private ownership of the land upon which the houses are to be built by people who do not own this land. But after this land has once been leased for the purpose of building houses on it, it depends upon the tenant whether he wants to build a large or a small house.
If the average composition of the agricultural capital were the same, or higher than that of social average capital, then absolute rent, in the sense in which we use this term, would disappear; that is, absolute rent which is different from differential rent as well as from the rent which rests upon an actual monopoly price. The value of agricultural capital would not stand above its price of production, in that case, and the agricultural capital would not set any more labor in motion, would not realize any more surplus labor, than the non-agricultural capital. The same would take place, if the composition of the agricultural capital would gradually become the same as that of the average social capital with the progress of civilization.
It looks at first glance like a contradiction, that we should assume that on the one hand the composition of the agricultural capital should become higher, in other words that its constant portion should increase faster than its variable one, and on the other hand that the price of the agricultural product should rise high enough to admit of the payment of a rent on the part of worse soil than that cultivated previously, a rent which in this case could come only from and excess of the market price over the value and the price of production, in short, a rent which could be due only to a monopoly price of the product.
It is necessary to make a clear distinction here.
In the first place, we saw in the discussion of the way, in which the rate of profit is formed, that capitals, which have the same composition, so far as their technological side is concerned, so that they set the same amount of labor in motion compared to machinery and raw materials, may nevertheless have different compositions owing to the different values of the constant portions of capital. The raw materials or the machinery may be dearer in one capital than in the other. In order to set the same quantity of labor in motion (and this would have to be the case, according to our assumption, in order that the same mass of raw materials might be worked up), a larger capital would have to be advanced in the one case than in the other, since I cannot set the same amount of labor in motion, if the raw material, which must be paid out of 100, costs 40 in one case and 20 in another. But it would become evident that these two capitals have the same technological composition, as soon as the price of the expensive raw material would fall to the level of the cheap. The proportions of value between constant and variable capital would become the same in that case, although no change would have taken place in the technical proportions between the living labor and the mass and nature of the material requirements or production employed by this capital. On the other hand, a capital of low organic composition might assume the appearance of being in the same class with one of a higher organic composition, as soon as the value of its constant parts would rise through changes in the composition of its values. For instance, one capital might be composed of 60 c + 40 v, because it employs much machinery and raw material compared to living labor, and another capital might be composed of 40 c + 60 v, because it employs 60% of living labor, 10% of machinery, and 30% of raw material. In this case a simple rise in the value of raw and auxiliary materials from 30 to 80 would wipe out the difference in composition, for then the second capital would be composed of 10 machinery, 80 raw materials, and 60 labor-power, or of 90 c + 60 v, which, in percentages, would also be equal to 60 c + 40 v, although no change would have taken place in the technical composition. In other words, capitals of the same organic composition may have a different value-composition, and capitals with the same percentages of value-composition may be at different levels of organic composition and thus express different steps in the development of labor's social productivity. The mere circumstance, then, that the agricultural capital might stand upon the general level, would not prove that the social productivity of labor is equally high-developed in it. Nothing would be shown thereby but that its own product, which itself forms one of the conditions of its own production, had become dearer, or that auxiliary materials, such as manure, which used to be close at hand, must now be brought from far distant places, etc.
But aside from this, the peculiar character of agriculture must be taken into consideration.
Even though labor saving machinery, chemical helps, etc., may occupy more space in agriculture, so that the constant capital increases not merely in value, but also in mass, as compared to the mass of the employed labor-power, the question in agriculture (as in mining) is not only one of the social, but also of the natural productivity of labor which depends upon natural conditions. It is possible that the increase of the social productivity in agriculture barely balances or does not even make up for, the decrease in natural power—and compensation through social productivity will always be effective for a short time only—so that in spite of the technical development there is no cheapening of the product, and that at best a greater increase in its price is prevented. It is also possible that the absolute mass of products decreases with a rising price of cereals, while the relative surplus product increases. This could take place, if the constant capital, consisting chiefly of machinery or animals, which require only a reproduction of their wear and tear, would increase relatively, and if the variable capital invested in wages, which must always be reproduced in full out of the product, should decrease correspondingly.
On the other hand it is possible, that only a moderate rise of the market price above the average is necessary, in order to cultivate and draw a rent from soil, which would have required a greater rise of the market prices so long as the technical helps were less developed.
The fact that, say in cattle raising on a large scale, the mass of the employed labor-power is very small compared with the constant capital represented by the cattle, might be considered as a refutation of the claim that the percentage of labor-power set in motion by agricultural capital is larger than that employed by the average social capital outside of agriculture. But it should be noted here that we have taken for our basis in the analysis of rent that portion of the agricultural capital, which produces the principal vegetable food, which is the chief means of subsistence among civilized nations. Adam Smith—and this is one of his merits—has already demonstrated that quite a different method of determining prices is observed in cattle raising, and for that matter generally in the production of agricultural capitals not engaged in raising the principal means of subsistence, say of cereals. For in this case the price of cattle is determined by the fact that the price of the product of the soil used for cattle raising, say as an artificial pasture, but which might just as well be transformed into cereal fields of a certain quality, must rise high enough to produce the same rent as cereal land of the same quality. In other words, the rent of cereal lands becomes a determining element in the price of cattle. For this reason Ramsay has justly remarked that the price of cattle is artificially raised by the rent, by the economic expression of private ownership of land, in short by the private ownership of land.
Adam Smith says in Book I, Chapter XI, Part I, of his Wealth of Nations, that in consequence of the extension of cultivation the uncultivated fallow land no longer suffices to supply the demand for cattle. A large portion of the cultivated lands must be used for breeding and fattening cattle, the price of which must be high enough to pay not merely for the labor spent upon them, but also for the rent which the landlord and the profit which the tenant might have drawn out of this land, had it been cultivated as a field. The cattle raised upon the least tilled peat bogs are sold according to their weight and quality in the same market and at the same price as those raised upon the best cultivated land. The owners of peat bogs profit thereby and raise the rent of their lands in proportion to the prices of cattle.
In this case, likewise, Smith represents the differential rent in favor of the worst soil as distinguished from grain rent.
The absolute rent explains some phenomena, which seem to make a mere monopoly price responsible for the rent, at first sight. Take, for instance, the owner of some forest, which exists without any human assistance, say in Norway. This will do to make a connection with Adam Smith's example. If this owner of the forest receives a rent from some capitalist, who has timber cut, perhaps on account of some demand from England, or if this owner has the timber cut in his own capacity as a capitalist, then a greater or smaller rent will accrue to him in the timber, aside from the profit on the invested capital. This looks like a pure increment from monopoly in the case of this product of nature. But as a matter of fact the capital consists here almost exclusively of variable elements invested in labor-power, and therefore it sets more surplus labor in motion than another capital of the same size. The value of the timber contains a greater surplus of unpaid labor, or of surplus-value, than that of a product of some capital of higher organic composition. For this reason the average profit can be drawn from this timber, and a considerable surplus in the form of rent can fall into the hands of the owner of the forest. On the other hand it may be assumed that, owing to the case with which the felling of timber as a line of production may be extended, the demand must rise very considerably, in order that the price of timber should equal its value, so that the entire surplus of unpaid labor (over and above that portion which falls into the capitalist's hands as an average profit) may accrue to the landlord in the form of rent.
We have assumed that the newly cultivated soil is of a still lesser quality than the worst previously cultivated one. If it is better, it pays a differential rent. But here we are analyzing precisely that case, in which the rent does not appear as a differential rent. There are only two cases possible under these circumstances. Either the newly cultivated soil is inferior to the previously cultivated soil, or it is just as good. If it is inferior, then we have already analyzed the question. Nothing remains for us to analyze but the case in which it is just as good.
We have already stated in our analysis of differential rent, that the progress of cultivation may just as well take equally good, or even better soil under new treatment as worse soil.
First. In differential rent (or any rent, generally speaking, since even in the case of differential rent the question comes up, whether on the one hand the fertility of the soil in general, and on the other hand its location, admit of its cultivation at the regulating market price in such a way as to produce a profit and a rent) two conditions work in different directions, now paralyzing each other, now alternately exerting the determining influence. The rise of the market price—provided that the cost price of cultivation has not fallen, in other words, provided that no technical progress becomes a new impetus to further cultivation—may bring more fertile soil under cultivation, which was formerly excluded from competition by its location. Or it may, in the case of inferior soil, enhance the advantage of location to such an extent, that its lesser fertility is balanced thereby. Or, without any rise in the market price, the location may carry better soils into competition through the improvement of means of communication, as we have seen on a large scale in the prairie states of North America. The same takes place also in the older civilized countries, continually if not to the same extent as in the colonies, in which, as Wakefield correctly states, the location determines the case. To sum up, then, the contradictory effects of location and fertility, and the variableness of the factor of location, which is continually balanced and passes perpetually through progressive changes tending towards a balance, carry alternately better or worse classes of soil into new competition with the older ones under cultivation.
Second. With the development of natural history and agronomics the fertility of the soil is also changed, by changing the means through which the elements of the soil may be rendered immediately serviceable. In this way light kinds of soil in France and in the eastern counties of England, which were considered inferior at one time, have recently risen to first place. (See Passy.) On the other hand soil, which was considered inferior, not for the reason that its chemical composition was bad, but that it placed certain mechanical and physical obstacles in the way of cultivation, is turned into good land, as soon as the means for overcoming such obstacles have been discovered.
Third. In all old civilized countries old historical and traditional conditions, for instance in the form of government lands, community lands, etc., have accidentally withdrawn large tracts of land from cultivation, and these come back into it very gradually. The succession, in which they are taken under cultivation, depends neither upon their good quality nor upon their location, but upon wholly external circumstances. In following up the history of English communal lands, as they were successively turned into private property through the Enclosure Bills and cultivated, nothing would be more ridiculous than the phantastic assumption, that a modern agricultural chemist like Liebig had indicated the selection of land in this succession, had designated certain fields for cultivation on account of their chemical peculiarities and excluded others. What decided the point in this case was the opportunity which tempted the thieves, it was the more or less plausible pretenses offered by the great landlords to excuse their appropriation of such lands.
Fourth. Aside from the fact that the stage of development reached at any time by the increased population and capital sets a certain barrier to the extension of cultivation, even though it be an elastic barrier, and aside from the effects of accidents, which temporarily influence the market price, such as a series of good or bad seasons, the extension of agriculture over a larger area depends upon the entire condition of the market in capitals and upon the business condition of the whole country. In periods of stringency it will not be enough that uncultivated soil may produce the average profit for the tenant—no matter whether he pays any rent or not—in order that additional capital be invested in agriculture. On the other hand, in periods with a plethora of capital it will flow into agriculture, even without any rise in market prices, so long as only the other normal conditions are present. Better soil than that hitherto cultivated would be excluded from competition for the sole reason that its location would be unfavorable, or that it would present insurmountable obstacles to its employment for the time being, or that it was kept out by accident. For this reason we must occupy ourselves with soils which are just as good as those last cultivated. Now there is always the difference in the cost of clearing for cultivation between the new soil and the last cultivated one. And it depends upon the stand of market prices and of credit whether new land is cleared or not. As soon as this soil actually enters into competition, the market price falls once more to its former level, assuming other conditions to be equal, and the new soil will then produce the same rent as the corresponding soil formerly cultivated as the last. The theory that it does not produce any rent is proved by its champions by assuming what they are precisely called upon to prove, namely that the soil which used to be the last did not pay any rent. One might prove in the same way that the houses which were built last do not produce any rent except the house rent proper, although they are leased. In fact, however, they do produce a rent even before they yield any house rent, for they often stand vacant for a long time. Just as successive investments of capital in a certain piece of land may bring a proportional surplus and thereby the same rent as the first investment, so fields of the same quality as those last cultivated may bring the same yield at the same cost. Otherwise it would be altogether inexplicable, how fields of the same quality could ever be taken successively under cultivation, and not all of them at the same time, or rather not a single one of them in order to avoid their coming into competition at all. The landlord is always ready to draw a rent, in other words, to receive something for nothing. But capital requires certain conditions before it can comply with this wish of the landlord. The competition of the lands among themselves does not, therefore, depend upon the wish of the landlord that they should, but upon the opportunities offered to capital for competition with other capitals upon the new fields.
To the extent that the agricultural rent proper is purely a monopoly price, such a price can only be small, just as the absolute rent can only be small under normal conditions, whatever may be the surplus of the product's value over its price of production. The nature of absolute rent, therefore, consists in this: Equally large capitals in different spheres of production produce, according to their different average composition, so long as the rate of surplus-value, or the degree of labor exploitation, is the same, different amounts of surplus-value. In industry these different masses of surplus-value are leveled into an average profit and distributed among the individual capitals uniformly and as aliquot parts of the social capital. Private property in land prevents such an equalization among capitals invested in the soil, whenever production requires real estate, either for agriculture or for the extraction of raw materials, and catches a portion of the surplus value which would otherwise assist in the formation of the average rate of profits. The rent, then, forms a portion of the value, or more specifically of the surplus-value, of commodities and instead of falling into the hands of the capitalists, who extract it from their laborers, it is captured by the landlords, who extract it from the capitalists. The assumption is in this case that the agricultural capital sets more labor in motion than an equally large portion of the non-agricultural capital. How far the difference goes, or whether it exists at all, depends upon the relative development of agriculture as compared to industry. In the nature of the case this difference must decrease with the progress of agriculture, unless the proportion, in which the variable capital decreases as compared to the constant, is still greater in the industrial than in the agricultural capital.
This absolute rent plays an even more important role in the extractive industry, properly so-called, where one element of constant capital, the raw material, is wholly missing, and where, with the exception of those lines, in which the capital consisting of machinery and other fixed capital is very considerable, by far the lowest composition of capital exists. Precisely here, where the rent seems wholly due to a monopoly price, extraordinarily favorable market conditions are necessary in order that commodities may be sold at their value, or that rent may become equal to the entire excess of surplus-value in a commodity over its price of production. This applies, for instance, to rent in fishing waters, stone quarries, naturally grown forests, etc.131
BUILDING LOT RENT. MINING RENT. PRICE OF LAND.
DIFFERENTIAL rent appears every time and follows the same laws as the agricultural differential rent, wherever rent exists at all. Wherever natural forces can be monopolized and thereby guarantee a surplus profit to the industrial capitalist using these forces, whether it be waterfalls, or rich mines, or waters teeming with fish, or a favorably located building lot, there the person who by his or her title to a portion of the globe has been privileged to own these things will capture a part of the surplus profit of the active capital by means of rent. Concerning mining lands, Adam Smith has explained that the basis of their rent, like that of all land not employed in agriculture, is regulated by the agricultural rent (Book I, Chapter, XI, 2 and 3). This form of rent is distinguished, first, by the overwhelming influence exerted by location upon differential rent (an influence which is very considerable in vineyards and in building lots of large cities); secondly, by the palpable passiveness of the owner, whose sole activity consists (especially in mines) in exploiting the progress of social development, toward which he contributes nothing and for which he risks nothing, unlike the industrial capitalist; and finally by the preponderance of the monopoly price in many cases, particularly by the most shameless exploitation of poverty (poverty is for house rent a more lucrative source than the mines of Potosi ever were for Spain132 and by the tremendous power wielded by private property in land when united with industrial capital in the same hand and used for the purpose of practically excluding the laborers in their struggle for wages from the earth as a place of domicile.133 . One section of society thus exacts from another a tribute for the permission of inhabiting the earth. Private property in land implies the privilege of the landlord to exploit the body of the globe, the bowels of the earth, the air, and with them the conservation and development of life. Not only the increase of population, and with it the growing demand for shelter, but also the development of fixed capital, which is either incorporated in the soil or takes root in it and is based upon it, such as all industrial buildings, railroads, warehouses, factory buildings, docks, etc., necessarily increase the building rent. A mistake between the house rent, to the extent that it is an interest and mortgage upon the capital invested in a house, and the rent for the mere land is not possible in this case, even with all the good will of a Carey, particularly when the landlord and the building speculator are different persons, as they are in England. Two elements should be considered here: On the one hand, the exploitation of the earth for the purpose of reproduction or extraction, on the other hand the space required as an element of all production and all human activity. Private property in land demands its tribute in both directions. The demand for building lots raises the value of the land as a building ground and foundation, and the simultaneous demand for elements of the terrestrial globe serving as building material grows with it.134
That it is the ground-rent, and not the house, which forms the actual object of building speculation in rapidly growing cities, especially when building is carried on as an industry, as it is in London, we have already shown in Volume II, Chapter XII, pages 266-267, of the present work, where we quoted from the testimony of a large London building speculator, Edward Capps, given before the Select Committee on Bank Acts. The same man said on that occasion, No. 5435: I believe that a man who wants to get on in the world can hardly expect to get along by sticking to a fair trade....He must of necessity build also on speculation, and that on a large scale; for the contractor makes very little profit out of the buildings themselves, he makes his principal profits out of the rise of ground-rents. He takes up, for instance, a piece of land and pays 300 pounds sterling annually for it. If he erects the right class of houses upon it after a careful building plan, he may succeed in making 400 or 500 pounds sterling out of it, and his profit would consist much more of the increased ground-rent of 100 or 150 pounds sterling annually than of the profit from the buildings, which in many cases he does not consider at all.
And it should not be forgotten that after the lapse of the lease, at the end of 99 years, as a rule, the land with all the buildings upon it and with the ground-rent, generally increased to twice or thrice its original amount, reverts from the building speculator or from his legal successor to the original landlord who was the last to rent it.
The mining rent, in its strict meaning, is determined in the same way as the agricultural rent.
There are some mines, the product of which barely suffices to pay for the labor and to reproduce the capital invested in it together with the ordinary profit. They yield some profit to the contractor, but no rent to the landlord. They can be worked to advantage only by the landowner, who in his capacity of a contractor makes the ordinary profit out of his invested capital. Many coal mines in Scotland are operated in this way, and cannot be operated in any other way. The landowner does not permit anybody to work them without the payment of rent, but no one can pay any rent for them. (Adam Smith, Book I, Chapter XI, 2.)
It is necessary to distinguish, whether the rent flows from a monopoly price, because a monopoly price of the product or of the soil exists independently of it, or whether the products are sold at a monopoly price, because a rent exists. When we speak of a monopoly price, we mean in a general way a price which is determined only by the eagerness of the purchasers to buy and by their solvency, independently of the price which is determined by the general price of production and by the value of the products. A vineyard producing wine of very extraordinary quality, a wine which can be produced only in a relatively small quantity, carries a monopoly price. The winegrower would realize a considerable surplus profit from this monopoly price, the excess of which over the value of the product would be wholly determined by the wealth and the fine appetite of the rich wine drinkers. This surplus profit, which flows from a monopoly price, is converted into rent and in this form falls into the hands of the landlord, thanks to his title to this piece of the globe, which is endowed with peculiar properties. Here, then, the monopoly price creates the rent. On the other hand, the rent would create a monopoly price, if grain were sold not merely above its price of production, but also above its value, owing to the barrier erected by the private ownership of the land against the investment of capital upon uncultivated soil without the payment of rent. That it is only the title of a number of persons to the possession of the globe which enables them to appropriate a portion of the surplus labor of society to themselves, and to do so to an increasing extent with the development of production, is concealed by the fact that the capitalized rent, this capitalized tribute, appears as the price of the land, and that the land may be sold like any other article of commerce. The buyer, therefore, does not feel that his title to the rent is obtained gratis, and without the labor, the risk, and the spirit of enterprise of the capitalist, but rather that he has paid for it with an equivalent. To the buyer, as we have previously remarked, the rent appears merely as interest on the capital, with which he has bought the land and consequently his title to the rent. In the same way, the slave-holder considers a negro, whom he has bought, his property, not because slavery as such entitles him to that negro, but because he has acquired him just as he does any other commodity, by means of sale and purchase, but the title itself is only transferred, not created by sale. The title must exist, before it can be sold, and a series of sales cannot create this title by repetition any more than one single sale can. It was created in the first place by the conditions of production. As soon as these have arrived at a point, where they must shed their skin, the material source of the title, justified economically and historically and arising from the process which creates the material requirements of life, falls to the ground, and with it all transactions based upon it. From the point of view of a higher economic form of society, the private ownership of the globe on the part of some individuals will appear quite as absurd as the private ownership of one man by another. Even a whole society, a nation, or even all societies together, are not the owners of the globe. They are only its possessors, its users, and they have to hand it down to the coming generations in an improved condition, like good fathers of families.
In the following analysis of the price of land we leave out of consideration all fluctuations of competition, all land speculation, and small landed property, in which the land is the principal instrument of the producers and must, therefore, be bought by them at any price.
I. The price of land may rise, although the rent may not rise with it. This may take place,
1) by a mere fall of the rate of interest, which may cause the rent to be sold more dearly, so that the capitalized rent, the price of land rises;
II. The price of land may rise, because the rent increases.
The rent may increase, because the price of the product of the land rises, in which case the rate of differential rent always rises, whether the rent upon the worst cultivated soil be large, small or nonexistent. But by the rate we mean the ratio of that portion of surplus-value, which is converted into rent, to the invested capital, which produces the product of the soil. This differs from the ratio of the surplus product to the total product, for the total product does not comprise the entire invested capital, namely not the fixed capital, which continues to exist by the side of the product. But it includes the fact that upon the soils carrying a differential rent an increasing portion of the product is converted into an overplus of a surplus product. Upon the worst soil the increase in the price of the product of the soil first creates a rent and consequently a price of land.
But the rent may also increase without a rise in the price of the product of the soil. This price may remain unaltered, or may even decrease.
If the price remains constant, the rent can grow only (aside from monopoly prices) because, on the one hand, the same amount of capital remains invested in the older lands, while new lands of a better quality are cultivated, which, however, suffice only to cover the increased demand, so that the regulating market price remains unchanged. In this case the price of the old lands does not rise, but the price of the newly cultivated lands rises above that of the older lands.
Or, on the other hand, the rent rises because the mass of the capital exploiting the land increases, while the relative productivity and the market price remain the same. Although the rent remains the same in this case, compared to the invested capital, still its mass, for instance, may be doubled, because the capital itself has doubled. Since no fall in the price has occurred, the second investment of capital yields a surplus profit as well as the first, and it likewise is converted into rent after the expiration of the lease. The mass of the rent rises here, because the mass of capital producing a rent increases. The contention that different investments of capital in succession upon the same piece of land can produce a rent only to the extent that their yield is unequal, so that a differential rent arises, amounts to the contention that when two capitals of 1,000 pounds sterling each are invested upon fields of equal productivity, only one of them can produce a rent, although these fields belong to the better class of soil, which produces a differential rent. (The mass of the rental, the total rent of a certain country, grows therefore with the mass of capital invested, although the price of the individual pieces of land, or the rate of rent, or the mass of rent upon the individual pieces of land, does not necessarily increase; the mass of the rental grows in this case with the extension of cultivation over a wider area. This may even be combined with a fall of the rent upon the individual holdings.) On the other hand, this contention would lead to another, to the effect that the investment of capital upon two different pieces of land side by side follows different laws than the successive investment of capital upon the same piece of land, whereas differential rent is precisely derived from the identity of the law in both cases, that is, from the increased productivity of investments of capital either upon the same field or upon different fields. The only modification which exists here and is overlooked is that successive investments of capital, when invested upon different pieces of land, meet the barrier of private ownership of land, which is not the case with successive investments of capital upon the same piece of land. This accounts for the opposite effects, by which these two forms of investments keep each other in check in practice. Whatever difference appears here is not due to capital. If the composition of the capital remains the same, and with it the rate of surplus-value, then the rate of profit remains unaltered, so that the mass of profits is doubled when the capital is doubled. In like manner the rate of rent remains the same under the conditions assumed by us. If a capital of 1,000 pounds sterling produces a rent of x, then a capital of 2,000 pounds sterling, under the assumed conditions, produces a rent of 2 x. But calculated with reference to the area of land, which has remained unaltered, since the doubled capital works upon the same field, according to our assumption, the level of the rent has risen together with its mass. The same acre, which brought a rent of 2 pounds sterling, now brings 4 pounds sterling.135
The relation of a portion of the surplus-value, of money rent—for money is the independent expression of value—to the land is in itself absurd and irrational. For the magnitudes, which are here measured by one another, are incommensurable, a certain use-value, a piece of land of so and so many square feet on the one hand, and of so much value, especially surplus-value, on the other. This expresses in fact nothing else but that, under the existing conditions, the ownership of so and so many square feet of land enables the landowner to catch a certain quantity of unpaid labor, which capital wallowing in square feet like a hog in potatoes has realized [The manuscript here has in brackets, but crossed out, the name "Liebig."] But on first sight the expression is the same as though some one were to speak of the relation of a five-pound note to the diameter of the earth. However, the reconciliation of the irrational forms, in which certain economic conditions appear and assert themselves in practice, does not concern the active agents of these relations in their every day life. And as they are accustomed to moving about in them, they do not find anything strange about them. A complete contradiction has not the least mystery for them, They are as much at home among the manifestations which, separated from their internal connections and isolated by themselves, seem absurd, as a fish in the water. The same thing that Hegel says with reference to certain mathematical formulæ applies here. The thing which seems irrational to ordinary common sense is rational, and what seems rational to it is irrational.
When considered in connection with the land area itself, a rise in the mass of the rent expresses itself in the same way that a rise in the rate of the rent does, and this accounts for the embarrassment caused to some thinkers when the conditions, which would explain the one case, are absent in the other.
Finally, the price of land may also rise, even when the price of the products of the soil decreases.
In this case, the differential rent and with it the price of land of the better classes may have risen, owing to further differentiations. Or, if this should not be the case, the price of the products of the soil may have fallen through a greater productivity of labor, but in such a way that the increased productivity more than balances this. Let us assume that one quarter cost 60 shillings. Now, if the same acre, with the same capital, should produce two quarters instead of one, and the price of one quarter should fall to 40 shillings, then two quarters would cost 80 shillings, so that the value of the product of the same capital upon the same acre would have risen by one-third, although the price per quarter would have fallen by one-third. How this is possible without selling the product above its price of production or above its value, has been shown in the analysis of differential rent. As a matter of fact it is possible only in two ways. Either some bad soil is placed outside of competition, but the price of the better soil increases with the increase of differential rent, owing to the fact that the general improvement affects the various kinds of soil differently. Or, the same price of production (and the same value, in case absolute rent should be paid) expresses itself upon the worst soil through a larger mass of products, when the productivity of labor has become greater. The product represents the same value as before, but the price of its aliquot parts has fallen, while their number has increased. This is impossible, when the same capital has been employed; for in this case the same value always expresses itself through any portion of the product. It is possible, on the other hand, when additional capital has been used for gypsum, guano, etc., in short for improvements which extend their effects over several years. The premise is that the price of the individual quarter falls, but not to the same extent that the number of quarters increases.
III. These different conditions under which rent may rise and with it the price of land in general, or of particular kinds of land, may partly exist side by side and compete, or the one may exclude the other, so that they act alternately. But it follows from the foregoing that it will not do to conclude offhand that a rise in the price of land signifies also a rise of rent, or that a rise of rent, which always carries with it a rise in the price of land, also signifies a rise in the price of the products of the land.136
Instead of tracing to their source the natural causes which lead to an exhaustion of the soil, and which, by the way, were unknown to all economists who have written anything on differential rent, owing to the condition of agricultural chemistry in their day, the shallow conception has been advanced, that any amount of capital cannot be invested in a limited space of land. For instance, the "Westminister Review" maintained against Richard Jones, that all England could not be fed by cultivating Soho Square. If this is considered a special disadvantage of agriculture, it is precisely the opposite which is true. It is possible to invest capital successively with good results, because the soil itself serves as a means of production, which is not the case with a factory, or is true of it only to a limited extent, since there the land serves only as a basis, as a space, as a foundation for operations upon a certain area. It is true that, compared to scattered handicrafts, great industries may concentrate large productive plants in a small space. But even so, a definite space is always required at any stage of development, and the building of high structures has its practical limits. Beyond these limits any expansion of production demands also an extension of the land area. The fixed capital invested in machinery, etc., does not improve through use, but on the contrary, it wears out. New inventions may, indeed permit some improvement in this respect, but with any given development of the productive power the machine will always deteriorate. If the productive power is rapidly developed, the entire old machinery must be replaced by a better one, so that the old is lost. But the soil, if properly treated, improves all the time. The advantage of the soil is that successive investments of capital may bring gains without losing the older ones, and this implies the possibility of differences in the yields of these successive investments of capital.
GENESIS OF CAPITALIST GROUND-RENT.
[129.] Wakefield, England and America, London, 1833. Compare also Capital Volume I, Chapter XXVII.
[130.] See Dombasle and R. Jones.
[131.] Ricardo passes over this very superficially. See his remarks against Adam Smith on Forest rent in Norway, in Principles, chapter II, in the beginning.
[132.] Laing, Newman
[133.] Crowlington Strike. Engels, The Condition of the Working Class In England, page 256, Swan Sonnenschein edition
[134.] The paving of the London streets has enabled the proprietors of some naked rocks on the Scotch coast to draw a rent out of formerly absolutely useless stone soil. Adam Smith, Book I, Chapter XI, 2.
[135.] It is one of the merits of Rodbertus whose important work on rent we shall discuss in volume IV ("Theories of Surplus-Value," volume II, Part I), to have enlarged upon this point. He commits the mistake, however, to assume, in the first place, that in the case of capital the increase in profits is always expressed by an increase of capital, so that the ratio remains the same, when the mass of the profits increase. But this is an error, since the rate of profit may increase when the composition of the capital is changed, even if the exploitation of labor remains the same, just because the proportional value of the constant portion of capital, compared to its variable portion, may fall. In the second place he commits the mistake of dealing with the ratio of the money rent to a quantitatively limited piece of land, for instance to an acre, as though it had been the general assumption of classic economics in its analysis of the rise or fall of rent. This, again, is wrong. Classic economics always treats the rate of rent, so far as it considers rent in its natural form, with reference to the product, and so far as it considers rent as money rent, with reference to the advanced capital, because these are in fact its rational expressions.
[136.] Concerning a fall in the price of land as a fact when the rent rises, see Passy.