Chapter 40: The Second Form of Differential Rent (Differential Rent II)

Firstly. Its basis and point of departure, not only historically but as far as concerns its movement at any given point in time, is differential rent I, i.e. the simultaneous cultivation alongside one another of lands of different fertility and location, the simultaneous application alongside one another of different components of the total agricultural capital to tracts of land of differing quality.

In a historical perspective, this needs no explanation. In colonies, the colonists need only invest a little capital; the main agencies of production are labour and the soil itself. Each individual family head seeks an independent field of employment for himself and his people to work on, separate from those of his fellow colonists. Given agriculture proper, this must always be the case, even in pre-capitalist modes of production. In the case of sheep-farming, and stock-raising in general as an independent branch of production, there is a more or less communal exploitation of the land, and this exploitation is fundamentally extensive from the outset. The capitalist mode of production develops out of earlier modes of production in which the means of production are either in law or in fact the property of the tiller himself, in other words from the pursuit of agriculture as a kind of handicraft. By the nature of the case, it is only gradually from this starting-point that the means of production become concentrated and transformed into capital as against the immediate producers who are transformed into wage-labourers. The capitalist mode of production first takes its characteristic form here particularly in sheep-farming and stock-raising; but this is not the concentration of capital on a relatively small land area, but rather in production on a larger scale; the saving is on the keeping of horses and other production costs, not by the use of more capital on the same land. It follows from the natural laws of farming, moreover, that given a certain level of agriculture and the corresponding exhaustion of the soil, capital, which in this sense is synonymous with means of production already produced, becomes the decisive element in cultivation. As long as the tilled land forms a relatively small portion in relation to the untilled and the soil’s natural resources are not exhausted (as is the case when stock-raising and meat-eating predominate, in the period before the preponderance of agriculture proper and vegetable food), the embryonic new mode of production contrasts with peasant production particularly by the amount of land that is tilled for the account of one capitalist, and thus also by the extensive use of capital on a greater area. Thus it must always be borne in mind that differential rent I is the historical basis and starting-point from which development takes place. On the other hand, the movement of differential rent II at any given moment occurs only on an area that in turn forms the variegated basis for differential rent I.

Secondly. In the case of differential rent in form II, the variation in fertility is supplemented by differences in the distribution of capital (and creditworthiness) among the farmers. In manufacture proper, a specific minimal scale of business is soon formed in each branch of industry, and accordingly a minimum capital without which a particular business cannot be successfully conducted. Also formed in each branch of industry is a normal average amount of capital above this minimum, which the great bulk of producers must and do dispose of. Anything over and above this can form extra profit; anything below it does not receive even the average profit. The capitalist mode of production takes hold of agriculture only in a slow and uneven manner, as we can see in the case of England, the classical land of the capitalist mode of production in this sector. In so far as there is no free import of corn, or the volume and consequent effect of this is restricted, the market price is determined by those producers who work on inferior soil, i.e. producers whose conditions of production are less favourable than the average. A large part of the total capital applied in agriculture, and generally at its disposal, is to be found in their hands.

It is true that the peasant, for example, devotes a great deal of labour to his small parcel of land. But this labour is isolated, and deprived of the objective social and material conditions of productivity; it is denuded of them.

The effect of this factor is that the genuinely capitalist farmers are in a position to appropriate a portion of surplus profit; this would disappear, at least as far as the present point is concerned, if the capitalist mode of production were as uniformly developed in agriculture as in manufacture.

Let us start by considering simply the formation of surplus profit in the case of differential rent II, without troubling ourselves yet about the conditions under which this surplus profit can be transformed into ground-rent.

It is then clear that differential rent II is simply a different expression of differential rent I, and the same thing as far as its nature is concerned. The differing fertility of different types of land affects differential rent I only in so far as it means that capitals invested on the land give unequal results or products, either for the same size of capital or when taken proportionately. It can make no difference to this differing fertility or its product, and hence to the formation of differential rent for the more fruitfully invested portions of capital, whether this inequality marks different capitals invested successively on the same piece of land or whether the capitals are invested on several pieces of land of different types. In both cases the land shows differing fertility for the same capital investment, but now the same land does for a capital invested successively in different portions what in differential rent I is done by different kinds of land for different capitals of equal size, each forming part of the total capital.

If the same capital of £10, which in Table I * was invested by different farmers in the form of independent capitals of £2 1/2 on one acre each of the four land types A, B, C and D, were instead to be invested successively on one and the same acre of D, so that the first investment yielded 4 qrs, the second 3 qrs, the third 2 qrs and the last 1 qr (or alternatively in the inverse sequence), the price of £3 per qr for the wheat supplied by the least fruitful portion of the capital would not yield any differential rent, though it would determine the production price as long as it is necessary to supply wheat whose production price is £3. And since we assume capitalist production, so that the price of £3 includes the average profit that any capital of £2 1/2 yields, the three other portions of £2 1/2 each will therefore yield surplus profits, according to the difference of their product [from that of the least fertile land], since this product is sold not at its price of production but rather at the price of production of the least fruitful investment of £2 1/2: an investment that yields no rent and in which the price of the product is governed by the general law of production prices. The formation of surplus profits would be the same as in Table I.

Here we may see once again how differential rent II presupposes differential rent I. The minimum product that a capital of £2 1/2 yields, i.e. what it yields on the worst land, is here taken as 1 qr. Let us assume, therefore, that the farmer of land type D spends, besides the £2 1/2 that yields him 4 qrs and for which he pays 3 qrs in differential rent, a further £2 1/2 on the same land which only yields him 1 qr, just like the same capital on the worst land A. This would then be a non-rent-bearing capital investment, since he would only obtain the average profit. There would be no surplus profit to transform into rent. On the other hand, however, this declining product of the second capital investment on D would not have any effect on the profit rate. It would be the same as if £2 1/2 were newly invested on a further acre of type A, something that could in no way affect the surplus profit or, accordingly, the differential rent for the land types A, B, C and D. For the farmer, this additional investment of £2 1/2 on D would have been just as advantageous as we assumed the investment of the original £2 on the acre of D to have been, even though that yielded 4 qrs. Let him make two further capital investments of £2 1/2 each, the first giving him an additional product of 3 qrs, the second an additional product of 2 qrs. A further decline would then have occurred, compared with the yield of the first investment of £2 1/2 on D, which gave 4 qrs, hence a surplus profit of 3 qrs. But this would simply be a decline in the level of surplus profit and would affect neither the average profit nor the governing production price. This would be the case only if the extra production which yields these falling surplus profits made the production of A superfluous and thereby threw acre A out of cultivation. In that case the declining yield of the additional capital investment on acre D would be combined with a fall in the production price, e.g. from £3 to £1 1/2, if acre B became the non-rent-bearing land that governs the market price.

The product of D would now be 4 + 1 + 3 + 2= 10 qrs, whereas it was formerly 4 qrs. The price per qr, however, as governed by B, would have fallen to £1 1/2. The difference between D and B would be 10 − 2 = 8 qrs, which at £1 1/2 per qr = £12, whereas the money rent on D was formerly £9. This should be borne in mind. On a per acre basis, the rent level would have risen by 33 1/2 per cent, despite the declining rate of surplus profit on the two additional capitals of £2 1/2.

From this we can see the very complicated combinations to which differential rent always gives rise, and particularly when form II is taken together with form I, whereas Ricardo for instance deals with it quite one-sidedly and as something straightforward. We can have, for example, as above, a fall in the governing market price and at the same time a rise in rent on the more fertile lands, so that both the absolute product and the absolute surplus product rise. (In the case of differential rent I in a downward series, the relative surplus product can grow, and hence the rent per acre, even though the absolute surplus product per acre remains constant or even declines.) At the same time, however, the yield of successive capital investments on the same soil declines, even though a major part of these falls on the more fertile lands. From one point of view – as far as the product and the production prices are concerned – the productivity of labour has risen. From another point of view, it has declined, since this is what happens to the rate of surplus profit and the surplus product per acre for the various capital investments on the same land.

Given a declining yield for successive capital investments, differential rent II would necessarily involve an increase in the production price and an absolute decline in productivity only if these capital investments could take place only on the worst land A. If an acre of A yielded 1 qr for a capital investment of £2 1/2, assuming a production price of £3, and with a further investment of £2 1/2, i.e. a total of £5, yielded altogether only 1 1/2 qrs, then the production price of these £1 1/2 qrs would be £6, or £4 per qr. In this case every decrease in productivity consequent on a growing capital investment would be a relative decline in the product per acre, while on the better types of land it was only a decline in the excess surplus product.

By the very nature of the case, however, the development of intensive cultivation, i.e. successive capital investments on the same soil, sees these investments predominantly on the better types of land, or at least to a greater extent. (Here we are not referring to the permanent improvements by which formerly unusable land is transformed into usable.) The declining yield of successive capital investments must therefore act principally in the manner described. The better land is selected because it offers the best prospect that the capital applied to it will bring in a profit; i.e. it contains the greater quantity of the natural elements of fertility, and all that is needed is to put these to use.

When English agriculture became still more intensive, after the repeal of the Corn Laws, a large amount of what was formerly wheat-growing land was turned over to other uses, in particular to pasture for cattle, while those fertile tracts most suitable for wheat were drained and otherwise improved. The capital for wheat-growing was thus concentrated in a narrower area.

In this case – and here all possible surplus rates between the highest surplus profit of the best land and the product of the non-rent-bearing land A involve not just a relative but an absolute increase in the surplus product per acre – the newly formed surplus profit (and potential rent) does not represent a portion of the earlier average profit turned into rent (a portion of the product which formerly represented average profit), but rather additional surplus profit, transformed from that form into rent.

It is only in the case where the demand for corn grows in such a way that the market price rises above the production price of A, so that the surplus product on A, B or any other class of land could only be supplied at a higher price than £3 – it is only in this case that a rise in the production price and the governing market price would be combined with a decline in the product of an additional capital investment on any one of the classes A, B, C or D. In as much as this continued for a prolonged period and did not lead to the cultivation of additional land A (of at least A’s quality), with other factors also not bringing a cheaper supply, wages would rise as a result of the higher price of bread, other things being equal, and the profit rate would accordingly fall. It would be a matter of indifference in this case whether the increased demand was satisfied by drawing in worse land than A or by additional capital investment, irrespective of which of the four types of land this took place on. The differential rent would rise in combination with a falling rate of profit.

This single case in which the declining yield of capitals subsequently added to the types of land already under cultivation can subsequently lead to a rise in the price of production, a fall in the profit rate and the formation of increased differential rent – for under these circumstances the differential rent will rise on all types of land, just as if worse land than A now governed the market price – was treated by Ricardo as the only case, the normal case, and he reduced the formation of differential rent II simply to this.

This would also be the case if only type A land was tilled and successive capital investments on it did not involve a proportionate growth in the product.

Here, therefore, differential rent I is completely lost sight of in dealing with differential rent II.

With the exception of this case, where the supply from the types of land tilled is insufficient, so that the market price is permanently above the production price either until new and additional worse land is taken into cultivation or until the total product of the additional capital invested on the various types of land can only be supplied at a higher production price than prevailed before – with the exception of this case, the proportionate decline in the productivity of additional capitals leaves the governing production price and the profit rate unaffected.

Three further cases are then possible:

(a) If the additional capital on any of the land types A, B, C or D yields only the profit rate as determined by the production price of A, no surplus profit would be formed, and so no possible rent; no more than if additional land A had been tilled.

(b) If the additional capital yields a higher product, new surplus product (potential rent) is obviously formed, if the governing price remains the same. But this is not necessarily the case, i.e. not if this additional production throws land A out of cultivation and therefore out of the series of competing land types. The profit rate would rise if this was combined with a fall in wages or if the cheaper product was an element of constant capital. If the additional capital displayed its increased productivity on the best land types C and D, the extent to which the formation of increased surplus profit (and therefore increased rent) was combined with the fall in price and the rise in the profit rate would depend completely on the level of this increased productivity, and the amount of capital newly added. The rate of profit can rise even without a fall in wages, through a cheapening of the elements of constant capital.

(c) If the additional capital investment occurs in combination with declining surplus profits, but in such a way that its product leaves a surplus over the product of the same capital on land A, then under all circumstances, if the increased supply does not force land A out of cultivation, there is a new formation of surplus profits, which may take place on D, C, B and A simultaneously. If on the other hand the worst soil A is driven out of cultivation, the governing production price falls, and whether the surplus profit expressed in money, and hence the differential rent, rises or falls depends on the ratio between the reduced price per quarter and the reduced number of quarters forming the surplus profit. In any case, however, we have here the remarkable phenomenon that the production price can fall together with declining surplus profits, instead of having to rise, as it would seem at first sight.

These additional capital investments with decreasing surplus yields correspond completely to the case in which four new independent capitals of £2 1/2 each are invested on types of land whose fertility lies between A and B, B and C, and C and D, respectively yielding £1 1/2 qrs, 2 1/3 qrs, 2 2/3 qrs and 3 qrs. Surplus profits and potential rents would be formed on all these types of land for all four additional capitals, even though the rate of surplus profit, compared with that for the same capital investment on better land in each case, had fallen. And it would be all one whether these four capitals were invested on D, etc. or were distributed between D and A.

We come now to a basic distinction between the two forms of differential rent.

Given a constant production price and constant differences, the average rent per acre may rise with the total rental in the case of differential rent I, and so may the average rate of rent on capital. But the average is merely an abstraction. The actual level of rent, per acre or reckoned on capital, remains the same here.

On the same assumptions, however, the level of rent measured per acre may rise, even though the rate of rent, measured on the capital laid out, remains the same.

Assume that production doubles by the investment of £5 on each of A, B, C and D instead of £2 1/2, i.e. a total of £20 in capital instead of £10, the relative fertility remaining the same. This would be just the same as if 2 acres of each of these types of land were tilled instead of 1, with costs remaining the same. The profit rate remains the same and so does its proportion to the surplus profit or rent. But if A now bears 2 qrs, B 4 qrs, C 6 qrs and D 8 qrs, the production price still remains £3 per qr, since this increase is due not to a doubled yield on the same capital, but to the same proportionate yield on a doubled capital. The 2 qrs from A would now cost £6, just as formerly 1 qr cost £3. Profit on all the four types of land has doubled, but only because the capital laid out has done so. But the rent has doubled in the same proportion; it would be 2 qrs for B instead of 1 qr, 4 qrs for C instead of 2 qrs, and 6 qrs for D instead of 3 qrs; and the money rents for B, C and D would accordingly be £6, £12 and £18 respectively. The money rent per acre would have doubled just as the product per acre has, and so too would the land price in which this money rent is capitalized. Reckoned in this way, the level of corn and money rent rises, and with it the price of land, because the measure on which it is reckoned, the acre, is a piece of land of constant size. The proportionate level of rents, however, has not undergone any change. Reckoned in relation to the capital invested, i.e. as the rate of rent, the total rental of £36 stands in relation to the capital of £20 laid out as the rental of £18 did to a capital of £10. The same applies to the ratio of the money rent for each kind of land to the capital laid out on it; on C, for example, we have £12 rent to £5 capital, as we formerly had £6 rent to £2 1/2 capital. No new differences arise here between the capitals laid out, but new surplus profits do arise, merely because the additional capital is invested on some rent-bearing types of soil, or on all of them, giving the same proportionate product. If the doubled investment were to be made only on C, for example, the differential rent between C, B and D would remain the same when reckoned on capital; for if the differential rent on C has doubled, so too has the capital invested.

We can see from this that, with the production price remaining the same, a constant rate of profit and unchanged differences (and hence an unchanged rate of surplus profit or rent measured on capital), the level of both product- and money-rent per acre can rise, and with it the price of land.

The same thing can occur in the case of declining rates of surplus profit and hence of rent, i.e. with a declining productivity of additional capital investments which still however bear rent. If the additional capital investments of £2 1/2 each were not to double the product but instead B were to yield only £ 1/2 qrs, C 5 qrs and D 7 qrs, the differential rent on B for the second £2 1/2 capital would only be 1/2 qr instead of 1 qr, on C 1 qr instead of 2 qrs and on D 2 qrs instead of 3 qrs. The proportions between rent and capital for the two successive investments would be as follows:

	First investment		Second investment
B:	Rent £3,	Capital £2 1/2	Rent £1 1/2,	Capital £2 1/2
C:	” £6,	” £2 1/2	” £3,	” £2 1/2
D:	” £9,	” £2 1/2	” £6,	” £2 1/2