Let us assume that the demand for corn is rising and the supply can be satisfied only by successive capital investments with deficient productivity on the rent-bearing lands, by additional capital investment, similarly with declining productivity, on land A, or by capital investment on new lands of inferior quality to A.
Let us take land B as representative of the rent-bearing lands.
The extra capital investment requires a rise in the market price above the former governing production price of £3 per qr, in order to make possible the extra production of 1 qr on B. (This 1 qr may represent 1 million qrs, and each acre 1 million acres.) On C and D, etc., the types of land with the highest rent, there may also be a surplus product, but only with declining surplus productivity; the 1 qr from B, however, is assumed to be necessary in order to meet the demand. If this 1 qr can be produced more cheaply by extra capital on B than by the same extra capital on A, or by descending to land A_1 which can only produce at £4 per qr, for example, whereas the extra capital on A could produce at, say, £3 3/4 per qr, then the extra capital on B would govern the market price.
A would have produced 1 qr at £3 as before. B, also as before, a total of 3 1/2 qrs, at an individual production price of £6 altogether. If an extra £4 in production costs (including profit) was now necessary on B in order to produce a further quarter, while on A this could be produced at £3 3/4, it would obviously be produced on A and not on B. Let us assume therefore that it could be produced on B for an extra production cost of £3 1/2. In this case, £3 1/2 would be the governing price for the total production. B would sell its product, now 4 1/2 qrs, for £15 3/4. The production costs of the first 3 1/2 qrs form a deduction of £6 from this and those of the final qr £3 1/2 a total of £9 1/2. The surplus profit remaining for rent is £6 1/4, against only £4 1/2 before. In this case, the acre of A would also yield a rent of £ 1/2; but it would not be the worst land A, but the better land B, that governed the production price of £3 1/2. It is assumed here of course that there is no new accessible land of quality A and as well situated as that already cultivated, but that either a second capital investment would be needed on the stretch of A already cultivated, albeit at a still higher cost of production, or else it would be necessary to bring in still worse land A_1. As soon as differential rent II comes into play, by way of successive capital investments, the limits to the rising production price can be governed by better land, and the worst land, the basis for differential rent I, can then also bear rent. In this case, then, all cultivated land would bear rent in the sense of simple differential rent. We should then have the following two tables, in which price of production refers to the sum of the capital advanced plus 20 per cent profit, i.e. £ 1/2 profit on each £2 1/2 capital, making a total of £3.
Type of land |
Acres |
Price of production (£) |
Output (qrs) |
Selling price (£) |
Proceeds (£) |
Corn rent (qrs) |
Money rent (£) |
A |
1 |
3 |
1 |
3 |
3 |
0 |
0 |
B |
1 |
6 |
3 1/2 |
3 |
10 1/2 |
1 1/2 |
4 1/2 |
C |
1 |
6 |
5 1/2 |
3 |
16 1/2 |
3 1/2 |
10 1/2 |
D |
1 |
6 |
7 1/2 |
3 |
22 1/2 |
5 1/2 |
16 1/2 |
Total |
4 |
21 |
17 1/2 |
|
52 1/2 |
10 1/2 |
31 1/2 |
This is how things stand before the new capital investment of £3 1/2 on B, which only supplies 1 qr. After this capital investment, the situation is as follows.
Type of land |
Acres |
Price of production (£) |
Output (qrs) |
Selling price (£) |
Proceeds (£) |
Corn rent (qrs) |
Money rent (£) |
A |
1 |
3 |
1 |
3 1/2 |
3 1/2 |
1/7 |
1/2 |
B |
1 |
9 1/2 |
4 1/2 |
3 1/2 |
15 3/4 |
1 11/14 |
6 1/4 |
C |
1 |
6 |
5 1/2 |
3 1/2 |
19 1/4 |
3 11/14 |
13 1/4 |
D |
1 |
6 |
7 1/2 |
3 1/2 |
26 1/4 |
5 11/14 |
20 1/4 |
Total |
4 |
24 1/2 |
18 1/2 |
|
64 3/4 |
11 1/2 |
40 1/4 |
(The calculation here is again not completely correct. For the farmer of land B, the 4 1/2 qrs cost firstly £9 1/2 in production costs, and secondly £4 1/2 in rent, altogether £14; an average of £3 1/9 per qr. This average price of his total production therefore becomes the governing market price. The rent on A would accordingly come to £1/9 instead of £ 1/2, while that on B would remain £4 1/2 as before; 4 1/2 qrs at £3 1/9 = £14, which, when £9£ is deducted for production costs, leaves £4 1/2 for surplus profit. We see that despite the need to alter the figures, the example shows how differential rent II enables the better land that already bears rent to govern the price, and how in this way all land, even that which was previously devoid of rent, may be turned into rent-bearing land. – F. E.)
The corn rent must increase once the governing production price of corn rises, i.e. once an increase takes place in the price of a quarter of corn from the price-governing land or in the level of the price-governing capital investment on one of the land types. It is the same as if all types had become less fertile and produced only 4/5 qr for a £2 1/2 new capital investment, say, instead of 1 qr. The extra corn that they produce with the same capital investment is transformed into surplus product, representing surplus profit and hence rent. If we assume that the profit rate remains unchanged, the fanner can buy less corn with his profit. The profit rate may remain the same if wages do not rise – either because they are pressed down to the physical minimum, i.e. below the normal value of labour-power; or because the other objects of working-class consumption, those provided by manufacture, become relatively cheaper; or because the working day is prolonged or made more intensive and hence the profit rate in the non-agricultural branches of production, which however is what governs agricultural profit, remains the same, if it does not rise; or because, although the same capital is invested in agriculture, it includes more of the constant and less of the variable variety.
We have now dealt with the first way in which rent can arise on the formerly poorest land A, without the bringing into cultivation of still worse land; namely the way it originates from the difference between its individual price of production, which was formerly the governing one, and the new, higher price of production at which the last bit of extra capital supplies the extra product needed on better soil but with deficient productivity.
If the extra product had to be supplied by land A_1 which can only supply at £4 per qr, the rent of A would rise to £1 per acre. In this case, however, A_1 would take the place of A as the worst cultivated land, and A would come into the series of rent-bearing types as its lowest member. Differential rent I would have been affected. This case therefore lies outside a treatment of differential rent II, which arises from the varying productivity of successive capital investments on the same stretch of land.
But differential rent on land A can still arise in two other ways.
With a constant price – any given price, even one lower than previously prevailing – if the additional capital investment leads to surplus productivity, which must prima facie always be the case up to a certain point, particularly on the worst land.
Secondly, however, if the productivity of successive capital investments on land A declines.
It is assumed in both cases that the increased production is required by the state of demand.
Here, though, from the standpoint of differential rent, a particular difficulty presents itself on account of the law previously developed, i.e. that it is always the individual average price of production of a quarter for the total production (or the total capital outlay) that is decisive. In the case of land A, however, unlike the better types of land, there is no production price given outside itself, such as would restrict the equalization between the individual production price and the general one. For the individual production price of A is precisely the general production price that governs the market.
Assume:
(1) The productivity of successive capital investments is rising. 3 qrs instead of 2 qrs can be produced on 1 acre of A with a capital advance of £5, and at a cost of production therefore of £6. The first capital investment of £2 1/2 supplies 1 qr, the second 2 qrs. In this case, £6 in production costs yields 3 qrs, so that the average cost is £2 per qr; if these 3 qrs are then sold at £2 per qr, A continues to bear no rent, and it is simply the basis of differential rent II that has changed. £2 has become the governing production price instead of £3; a capital of £2 1/2 now produces an average of £1 1/2 qrs on the poorest land instead of 1 qr, and this is now the official yield for all superior types of land when £2£ 1/2 is invested. A part of their former surplus product goes from now on into forming their necessary product, just as a part of their surplus profit goes into the formation of the average profit.
If we reckon how things stand for the better types of land, however, where the average calculation in no way affects the absolute surplus, since for these soils the general production price is a given barrier to capital investment, then the 1 qr from the first capital investment costs £3 and the 2 qrs from the second investment cost only £1 1/2 each. A corn rent of 1 qr and a money rent of £3 thus arises on A, even though the 3 qrs are still sold at their old price of £9 altogether. If there is then a third capital investment of £2 1/2, with the same yield as the second, a total of 5 qrs would be produced for a production cost of £9. If A’s individual average price of production remains the governing one, each quarter must now be sold at £1 4/5. The average price would have fallen again, not because of a new rise in the yield of the third capital investment, but rather because of the addition of a new capital investment with the same extra yield as the second. Instead of causing an increase in the rent, as would be the case on the rent-bearing lands, the successive capital investments of higher but constant yield on land A cause a proportionate fall in the price of production, and with it in the differential rent on all other types of land, if other factors remain the same. If however the first capital investment that produces 1 qr at a production cost of £3 is to remain the regulator, these 5 qrs must be sold at £15, and the differential rent for the later capital investments on land A must amount to £6. Additional surplus capital per acre of A, whatever the form in which it is applied, would here be an improvement, while the additional capital would also have made the original capital more productive. It would be nonsense to say that a third of the capital had produced 1 qr, and the remaining two-thirds had produced 4 qrs. £9 per acre would always produce 5 qrs, while £3 would produce only 1 qr. Whether or not a rent arises here – a surplus profit – would depend entirely on the circumstances. Normally, the governing price of production would have to fall. This is the case when this improved but more costly cultivation of land A is undertaken only because it is also on the better types of land – i.e. a general revolution in agriculture; so that now, when we speak of the natural fertility of land A, we assume that it is obtained with £6 or £9 instead of with £3. This would particularly be the case if the majority of acres of land A which are tilled, and which provide the bulk of the country’s supply, are transferred to this new method. But if the improvement affected only a small portion of the acreage of A, to start with, this better cultivated part would supply a surplus profit which the landowner would quickly reach out to turn completely or in part into rent, and fix it as such. In this way, if demand kept pace with the growing supply, then to the extent that the whole area of land A was gradually transferred to the new method, rent could gradually form on all land of quality A and the surplus profit would be completely or partially confiscated, according to the market conditions. The establishment of equality between A’s production price and the average price of its product in conditions of increased capital outlay might in this way meet an obstacle in the fixation in the form of rent of the surplus profit of this increased capital outlay. In this case, as we saw previously on the better lands in conditions of declining productivity for the additional capital, it would again be the transformation of the surplus profit into ground-rent, i.e. the intervention of landed property, that raised the production price, instead of the differential rent being simply the result of differences between the individual production price and the general one. For land A this would prevent the two prices from coinciding because it would prevent the production price from being governed by A’s average production price; a higher production price than necessary would be maintained, and rent created accordingly. Even with the free import of corn from abroad, the same result could be obtained or maintained, if the farmer were compelled to turn to other uses, e.g. pasture, such land as was capable of competing in grain cultivation without yielding rent, at the price of production governed by foreign conditions, with the result that only rent-bearing land – i.e. only land whose individual average price of production per quarter was less than that determined by conditions abroad – would be used for the cultivation of grain. It should generally be assumed that the production price would fall in the given case, though not to the average price. It would stand higher than this, but below the production price of the worst cultivated land A, so that competition from new land would be restricted.
(2) The productivity of the additional capitals is declining. Assume that land A_1 can only produce each additional quarter at £4, whereas land A can do this at £3 3/4: less dear, but £ 3/4 dearer than the quarter produced by the first capital investment. In this case the total price of the 2 qrs produced on A would be £6 3/4; i.e. an average price per qr of £3 3/8. The production price would rise, but only by £ 3/8, whereas if the additional capital was applied to new land which produced at £3 3/4, it would rise by a further £ 3/8 to £3 3/4 and would thereby cause a proportionate rise in all other differential rents.
The production price of £3 3/8 per qr on A would thus be equalized with the average production price with an increased capital investment, and would be the governing one; i.e. it would not yield any surplus profit, and therefore no rent.
But if this quarter produced by the second capital investment was sold at £3 3/4 land A would now yield a rent of £ 3/4 and moreover this would happen even on acres of A on which no extra capital investment had been made, and which therefore still continued to produce at £3 per qr. As long as there are still untilled stretches of A, the price could rise only temporarily to £3 3/4. The competition of new stretches of A would keep the price of production down to £3 until all land A able by its favourable situation to produce at less than £3 3/4 per qr was exhausted. This is what we would assume, even though when one acre of a certain land bears rent, the landowner will not lease out another acre of the same land rent-free.
It depends once more on how far the second capital investment on the available land A has become general, whether the production price is equalized to the average price, or whether the individual production price of the second capital investment, £3 3/4, becomes the governing one. The latter is the case only when the landowner has the time to fix as rent the surplus profit that was made before the demand was satisfied at a price of £3 3/4.
*
Liebig* should be consulted on the declining productivity of the soil when successive capital investments are made. We have seen how the successive decline in surplus productivity of capital investments always increases the rent per acre when the price of production is constant, and how it can even do this when the price is falling.
The following general point should be noted, however.
From the standpoint of the capitalist mode of production, there is always a relative increase in the price of products if, in order to obtain the same product, an outlay must be made that was previously unnecessary. For the replacement of capital consumed in the course of production does not simply mean the replacement of values expressed in particular means of production. Natural elements which go into production as agents without costing anything, whatever role they might play in production, do not go in as components of capital, but rather as a free natural power of capital; in fact a free natural productive power of labour, but one which on the basis of the capitalist mode of production presents itself as a productive power of capital, like every other productive power. If a natural power of this kind, therefore, which originally cost nothing, goes into production, it does not count in determining prices as long as the product supplied with its aid is sufficient to meet the demand. But if a greater product has to be supplied in the course of development than can be produced with the aid of this natural power, so that this additional product must be produced without the aid of this natural power or with human assistance, human labour, a new and additional element goes into the capital. A relatively greater capital investment is thus needed to obtain the same product. All other circumstances remaining the same, production becomes more expensive.
*
(From a notebook ‘Begun mid-February 1876’: F. E.)
Differential rent and rent as simply interest
on the capital incorporated into the soil
So-called permanent improvements – those which change the physical characteristics of the soil, and in part also its chemical properties, by operations that require a capital outlay and can be considered as an incorporation of capital into the soil – almost all boil down to giving a particular piece of land, the soil in a particular and restricted place, characteristics that other land somewhere else, and often quite close by, possesses by nature. One piece of land is naturally level, the other has to be levelled. One is naturally well drained, the other requires draining artificially. One has a naturally deep top-soil, in the other this has to be artificially deepened. One clay soil is naturally mixed with the requisite amount of sand, in the other this proportion has to be obtained artificially. One meadow is naturally irrigated or covered with layers of silt, the other has to be made so by labour, or, in the language of bourgeois economics, by capital.
Now it is a truly amusing theory which asserts that on the land whose comparative advantages are acquired, rent is interest, while on the other land, which has these advantages by nature, it is not. (In actual fact, this question is confused in practice because rent really does coincide with interest in the one case, so it is also called interest and has to be misnamed as such in the others, where this is positively not the case.) But after the capital investment has been made, the land bears the rent not because capital has been invested in it but rather because the capital investment has made the land a more productive field of investment than before. If we assume that all the land in a country requires this capital investment, each piece of land which has not yet passed through this state has to do so, and the rent borne by the land already provided with this capital investment (the interest that it yields in the given case) is just as much a differential rent as if it possessed this advantage by nature and the other land had to obtain it artificially.
This rent which can be resolved into interest also becomes pure differential rent as soon as the capital laid out is amortized. Otherwise the same capital would have to lead a double existence as capital.
*
It is a most curious phenomenon that all those opponents of Ricardo who struggled against the determination of value exclusively in terms of labour, when faced with the fact that differential rent arose from differences in land, maintained that in this case nature determined value instead of labour, though at the same time they allowed this determination in the case of the land’s position, or even, and still more, for interest on capital put into the soil for the purpose of cultivation. The same labour produces the same value for the product created in a given time; but the size or amount of this product, and thus the portion of value which falls to a particular aliquot part, depends for a given quantity of labour solely on the amount of the product, and this in turn on the productivity of the given amount of labour, not on its absolute amount. Whether this productivity is due to nature or society is quite immaterial. But in the case where it itself costs labour, i.e. capital, it increases the costs of production by a new component, which is not the case when nature alone is involved.