In our analysis of ground-rent we intend to proceed first of all from the assumption that products that pay a rent of this kind – which means that a part of their surplus-value – and therefore also a part of their total price, is reducible to rent – are sold just like all other commodities at their prices of production. For our present purpose we need consider only agricultural products; we could alternatively take the products of mining. Their sale prices are equal therefore to their cost elements (the value of the constant and variable capital consumed) plus a profit determined by the general rate of profit calculated on the total capital advanced, whether used up or not. We assume, therefore, that the average sale prices of these products are equal to their prices of production. The question then arises how a ground-rent can develop on this assumption, i.e. how a portion of profit can be transformed into ground-rent, so that a part of the commodity price thus accrues to the landowner.
To demonstrate the general character of this form of ground-rent, we assume that the factories in a country are powered predominantly by steam-engines, but a certain minority by natural waterfalls instead. We assume the production price in the branches of industry first mentioned to be 115 for a quantity of commodities for which a capital of 100 is consumed. The 15 per cent profit is calculated not just on the consumed capital of 100 but on the total capital that is applied in the production of this commodity value. This production price, as we explained earlier, is determined not by the individual cost price of any one industrialist producing by himself, but rather by the price that the commodity costs on average under the average conditions for capital in that whole sphere of production. It is in fact the market price of production; the average market price as distinct from its oscillations. It is always in the form of the market price, and moreover in the form of the governing market price or the market price of production, that the nature of commodity value presents itself, its character being determined not by the labour-time needed by a certain individual producer to produce a certain quantity of a commodity, or a certain number of individual commodities, but by the socially necessary labour-time; by the labour-time required under the given average social conditions of production to produce the total socially required quantity of the species of commodity available on the market.
Although the particular numerical figures are completely immaterial here, we shall further assume that the cost price in those factories that are driven by water-power comes to only 90, instead of 100. Since the production price of the great mass of goods that governs the market is 115, with a profit of 15 per cent, the factories that drive their machines with water-power will also sell at 115, i.e. at the market price as governed by the average price. Their profit will amount to 25 instead of 15; the governing price of production enables them to make a surplus profit of 10 per cent, not because they sell their commodities above the price of production but because they sell them at this price, because their commodities are produced, or their capital functions, under exceptionally favourable conditions, conditions that stand above the average level prevailing in this sphere.
Two things are immediately evident here.
Firstly, the surplus profit of those producers who use natural water-power as their motive force behaves first of all just like any other surplus profit (this category has already been developed in our presentation of the price of production) which is not the chance result of transactions in the circulation process, of accidental fluctuations in market price. This surplus profit is thus similarly equal to the difference between the individual price of production of these favoured producers and the general social price of production in the sphere of production as a whole, which is what governs the market. This difference is equal to the excess of the general production price of the commodity over its individual production price. The two governing limits of this excess are on the one hand the individual cost price and hence the individual production price, and on the other the general production price. The value of the commodities produced by water-power is lower because a smaller amount of labour is required for their production, i.e. less labour enters in the objectified form, as a portion of the constant capital. The labour applied here is more productive, its individual productivity being greater than that of the labour employed in the majority of factories of the same type. Its greater productivity is expressed in the way that it needs a smaller quantity of constant capital to produce the same amount of commodities, a smaller quantity of objectified labour than the others; and a smaller quantity of living labour as well, since the water-wheel does not need to be heated. This greater individual productivity of the labour applied reduces the value of the commodity, and its cost price and therefore its production price as well. For the industrialist, this presents itself in the following way, that the cost price of the commodity for him is less. He has less objectified labour to pay for, and similarly less wages for less living labour-power applied. Since the cost price of his commodity is less, so too is his individual production price. His cost price is 90 instead of 100. And so his individual production price is also only 103 1/2 instead of 115 (100:115 = 90:103 1/2). The difference between his individual production price and the general one is determined by the difference between his individual cost price and the general one. This is one of the magnitudes that set limits to his surplus profit. The other is the general price of production, in which the general rate of profit is one of the governing factors. If coal becomes cheaper, the difference between his individual cost price and the general one declines, and so therefore does his surplus profit. If he had to sell the commodity at its individual value, or at the production price determined by this individual value, the difference would disappear. It is the result on the one hand of the fact that the commodity is sold at its general market price, the price at which competition balances the individual prices, and on the other hand of the fact that the greater individual productivity of the labour that he sets in motion does not benefit the workers, but, like the productivity of labour in general, their employer; i.e. it presents itself as the productivity of capital.
Since one limit to this surplus profit is the level of the general price of production, and the general rate of profit is a factor of this, the surplus profit can arise only from the difference between the general and the individual production prices, and hence from the difference between the individual and the general rate of profit. An excess over and above this difference would presuppose the sale of the product above the price of production governed by the market, and not at this price.
Secondly, the surplus profit of the manufacturer who uses natural water-power as his motive force instead of steam has not so far been distinguished in any way from all other surplus profit. All normal surplus profit, i.e. excluding that brought about by accidental business deals or by fluctuations in the market price, is determined by the difference between the individual production price of the commodities produced by this particular capital and the general production price which governs the market prices of commodities for capital right across this sphere of production – the market prices of commodities for the total capital invested in this sphere of production.
But now comes the difference.
To what circumstances does the manufacturer in the present case owe his surplus profit, the excess that the production price governed by the general rate of profit yields him personally?
In the first instance, to a natural force, the motive force of water-power which is provided by nature itself and is not itself the product of labour, unlike the coal that transforms water into steam, which has value and must be paid an equivalent, i.e. costs something. It is a natural agent of production, and no labour goes into creating it.
But this is not all. The manufacturer who operates with the steam-engine also applies natural forces which cost him nothing but which make labour more productive, and, in so far as they cheapen the production of the means of subsistence the workers require, increase surplus-value and hence profit; which are therefore just as much monopolized by capital as are the natural social forces of labour that arise from cooperation, division of labour, etc. The manufacturer pays for the coal, but not for the ability of water to change its aggregate state and transform itself into steam, nor for the elasticity of steam, etc. This monopolization of natural forces, i.e. of the increase in labour-power* that they bring about, is common to all capital that operates with steam-engines. It may increase the part of the product of labour that represents surplus-value as against the part that is transformed into wages. In as much as it does this, it increases the general rate of profit but it does not create any surplus profit, for this consists precisely in the excess of individual profit over and above the average profit. If in our case the application of a natural force, water-power, does create surplus profit, this cannot arise simply from the fact that the increased productivity of labour is due here to the use of a natural force. Further modifying factors must intervene.
Conversely. The simple application of natural forces in industry may affect the level of the general rate of profit, through the amount of labour required to produce the necessary means of subsistence. But it does not in and of itself create any divergence from the general rate of profit, and it is precisely this that we are dealing with now. Moreover, the surplus profit that an individual capital in a particular sphere of production might otherwise realize – for divergences in the rate of profit between particular spheres of production are constantly balanced out to give the average rate – arises, apart from merely accidental divergences, from a reduction in the cost price, i.e. in production costs, which is due either to the fact that capital is applied on a greater than average scale, so that the faux frais of production are reduced, while the general causes of a rise in labour productivity (cooperation, division of labour, etc.) can operate to a greater extent and with more intensity, because over a larger field of operation; or else to the fact that, apart from the scale of the capital functioning, better methods of work, new inventions, improved machines, trade secrets in chemistry, etc. are employed – in other words it is due to the application of new, improved and above-average means and methods of production. The reduction in the cost price, and the surplus profit which flows from it, arise here from the manner and form in which the capital functioning is invested. They arise either from its concentration in exceptionally large amounts in a single hand – something that is cancelled out as soon as equally large amounts of capital are employed in the average case – or from the circumstance that capital of a particular size functions in a particularly productive way – and this ceases to operate as soon as the exceptional manner of production becomes universal, or is overtaken by one still more advanced.
The reason for the surplus profit in this case is thus inherent in the capital itself (including the labour that it sets in motion), whether a difference in magnitude of the capital applied or a more efficient application of it; and nothing inherently prevents all capital in the same sphere of production from being invested in the same way. Competition between capitals actually tends to the contrary, it tends to cancel out these distinctions more and more; the determination of value by socially necessary labour-time leads to the cheapening of commodities and the compulsion to produce commodities under the same favourable conditions. Things take a different form with the surplus profit of the manufacturer who makes use of the waterfall. The increased productivity of the labour he applies arises neither from the capital and labour themselves nor from the simple application of a natural force distinct from capital and labour but incorporated into the capital. It arises from the greater natural productivity of a labour linked with the use of a natural force, but a natural force that is not available to all capital in the same sphere of production, as is for example the elasticity of steam; its use therefore does not automatically occur as soon as capital is invested in this sphere. What is used is rather a monopolizable natural force which, like the waterfall, is available only to those who have at their disposal particular pieces of the earth’s surface and their appurtenances. It is in no way just up to the capital to call into being this natural condition of greater labour productivity, in the way that any capital can transform water into steam. The condition is to be found in nature only at certain places, and where it is not found it cannot be produced by a particular capital outlay. It is not bound up with products that labour can produce such as machines, coal, etc., but rather with particular natural conditions on particular pieces of land. Those manufacturers who possess waterfalls exclude those who do not possess them from employing this natural force, because land is limited, and still more so land endowed with water-power. It is not ruled out that, although the number of natural waterfalls in a country is limited, the amount of water-power that industry can use may still be increased. A waterfall can be artificially channelled to make its motive power fully usable; a water-wheel can be improved in order to use as much of this water-power as possible; where the ordinary type of wheel is not suited to the supply of water, turbines can be used, etc. Possession of this natural force forms a monopoly in the hands of its owner, a condition of higher productivity for the capital invested, which cannot be produced by capital’s own production process;33 the natural force that can be monopolized in this way is always chained to the earth. A natural force of this kind does not belong to the general conditions of the sphere of production in question nor to those of its conditions that are generally reproducible.
If we now imagine that these waterfalls, together with the land on which they are located, are in the hands of subjects who are accepted as the proprietors of these portions of the globe, as landowners, then these are in a position to prevent the application of capital to the waterfall and its utilization by capital. They can either allow this use or refuse it. But capital cannot create a waterfall from its own resources. The surplus profit that arises from this use of the waterfall thus arises not from the capital but rather from the use by capital of a monopolizable and monopolized natural force. Under these conditions, the surplus profit is transformed into ground-rent, i.e. it accrues to the owner of the waterfall. If the manufacturer pays the latter £10 per year for the waterfall, his profit comes to £15,15 per cent on the £100 which is now the amount of his production costs. And he is still in a position just as good as, if not better than, the other capitalists in his sphere of production who operate with steam. Nothing is altered if the capitalist owns the waterfall himself. He still draws the surplus profit of £10 not as a capitalist, but as the owner of the waterfall; and for the precise reason that this excess arises not from his capital as such, but rather from his disposal over a natural force that is limited in scope, separable from his capital, and monopolizable, it is transformed into ground-rent.
Firstly, it is clear that this rent is always a differential rent, for it does not contribute to determining the general production price of the commodity, but takes this as given. It always arises from the difference between the individual production price of the particular capital which has the monopolized natural force available to it and the general production price for capital invested in the sphere of production in question.
Secondly, this ground-rent does not derive from any absolute rise in productivity of the capital applied or of the labour it appropriates, which can only ever reduce the value of commodities; it arises from the greater relative returns from certain particular capitals invested in a sphere of production, as compared with those capital investments that are excluded from these exceptional, favourable conditions of productivity which have been created by nature. If for example the use of steam gave an overwhelming advantage which would not occur if water-power was used, even though coal has value and water-power does not, and this advantage more than compensated for that fact, water-power would not be used and could not produce any surplus profit, nor therefore any rent.
Thirdly, the natural force is not the source of the surplus profit, but simply a natural basis for it, because it is the natural basis of the exceptionally increased productivity of labour. Use-value is altogether the bearer of exchange-value but not its cause. If the same use-value could be obtained without labour, it would have no exchange-value. On the other hand, however, a thing cannot have exchange-value without having use-value, i.e. without being such a natural bearer of labour. If the various different values did not balance out into production prices and the various individual production prices into a general production price that governs the market, a rise in labour productivity resulting from the use of a waterfall would simply lower the price of the commodities produced with the waterfall without raising the portion of profit contained in these commodities, just as increased labour productivity in general would not be transformed into surplus-value if capital did not appropriate as its own the productive power, natural and social, of the labour applied.
Fourthly, landed property in the waterfall has in and of itself nothing to do with the creation of the portion of surplus-value (profit) and hence of the price of the commodity that is produced with the aid of the waterfall. This surplus profit exists even if there is no landed property, if for example the land on which the waterfall is located can be used by the manufacturer as unclaimed land. Thus landed property does not create the portion of value that is transformed into surplus profit; rather it simply enables the landowner, the proprietor of the waterfall, to entice this surplus profit out of the manufacturer’s pocket and into his own. It is not the cause of this surplus profit’s creation, but simply of its transformation into the form of ground-rent, hence of the appropriation of this portion of profit or commodity price by the landowner or waterfall-owner.
Fifthly, it is evident that the price of the waterfall, i.e. the price that the landowner would receive if he sold it to a third party or to the manufacturer himself, does not at first go directly into the production price of the commodities concerned, even though it does go into the individual price for the manufacturer; for rent arises in this case from the production price of those commodities of the same kind that are produced by steam-engines, which is determined independently of the waterfall. The price of the waterfall, besides, is altogether an irrational expression concealing a real economic relationship. The waterfall, like the earth in general and every natural force, has no value, since it represents no objectified labour and hence no price, this being in the normal case nothing but value expressed in money. Where there is no value, there is eo ipso nothing to be expressed in money. This price is nothing but capitalized rent. Landed property enables the proprietor to lay hold of the difference between the individual profit and the average profit; the profit captured in this way, which is renewed every year, can be capitalized and then appears as the price of the natural force itself. If the surplus profit that the use of the waterfall yields to the manufacturer is £10 per year and the average interest is 5 per cent, this £10 per year represents the interest on a capital of £200; and this capitalization of the annual £10 that the waterfall empowers its owner to extract from the manufacturer then appears as the capital value of the waterfall itself. The fact that the waterfall does not itself have value but that its price is simply the reflection of the surplus profit extracted, in a capitalist reckoning, is immediately evident in the way that the price of £200 simply expresses the product of the surplus profit of £10 multiplied by twenty years, whereas, if circumstances remain otherwise the same, the same waterfall actually enables its owner to extract this annual £10 for an indefinite time, thirty or a hundred years, while on the other hand, if a new method of production that cannot make use of water-power lowers the cost price of the commodities produced by steam from £100 to £90, the surplus profit would disappear, and the rent and the price of the waterfall along with it.
Now that we have established the general concept of differential rent in this way, we turn to consider this rent in agriculture proper. What will be said of agriculture applies on the whole also to mining.