Front Page Titles (by Subject) CHAPTER XLV.: ABSOLUTE GROUND-RENT. - Capital: A Critique of Political Economy. Volume III: The Process of Capitalist Production as a Whole
Return to Title Page for Capital: A Critique of Political Economy. Volume III: The Process of Capitalist Production as a Whole
The Online Library of Liberty
A project of Liberty Fund, Inc.
Search this Title:
CHAPTER XLV.: ABSOLUTE GROUND-RENT. - 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).
About Liberty Fund:
The text is in the public domain.
Fair use statement:
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
[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.