Wherever rent exists, differential rent always appears and always follows the same laws as it does in agriculture. Wherever natural forces can be monopolized and give the industrialist who makes use of them a surplus profit, whether a waterfall, a rich mine, fishing grounds or a well-situated building site, the person indicated as the owner of these natural objects, by virtue of his title to a portion of the earth, seizes this surplus profit from the functioning capital in the form of rent. As far as land for building is concerned, Adam Smith has discussed how the basis of its rent, as with all non-agricultural land, is governed by agricultural rent proper (Book I, Chapter XI, 2 and 3). This rent is characterized first by the preponderant influence that location exerts here on the differential rent (very important, for example, in the case of vineyards, and building land in big towns); secondly, by the palpable and complete passivity displayed by the owner, whose activity consists simply in exploiting advances in social development (particularly in the case of mines), towards which he does not contribute and in which he risks nothing, unlike the industrial capitalist; finally, by the prevalence of a monopoly price in many cases, and particularly the most shameless exploitation of poverty (for poverty is a more fruitful source for house-rent than the mines of Potosí were for Spain);38 the tremendous power this gives landed property when it is combined together with industrial capital in the same hands enables capital practically to exclude workers engaged in a struggle over wages from the very earth itself as their habitat.39 One section of society here demands a tribute from the other for the very right to live on the earth, just as landed property in general involves the right of the proprietors to exploit the earth’s surface, the bowels of the earth, the air and thereby the maintenance and development of life. The rise in population, and the consequent growing need for housing, is not the only factor that necessarily increases the rent on buildings. So too does the development of fixed capital, which is either incorporated into the earth or strikes root in it, like all industrial buildings, railways, factories, docks, etc., which rest on it. It is impossible even with Carey’s good intentions to confuse house-rent, in as much as this is interest and amortization for the capital invested in the house, with rent of land pure and simple, particularly when, as in England, the landowner and the speculative builder are completely different persons. Two elements come into consideration here: on the one hand the exploitation of the earth for the purpose of reproduction or extraction, on the other the space that is required as an element for any production and any human activity. On both counts landed property demands its tribute. The demand for building land raises the value of land as space and foundation, while at the same time there is a growing demand for those elements of the earth’s physical constitution that serve as building material.40
We have already given an example of how in cities that are experiencing rapid growth, particularly where building is carried on factory-style, as in London, it is ground-rent and not the houses themselves that forms the real basic object of speculative building; see Volume 2, Chapter 12, pp. 311–12, the evidence of a major London speculative builder, Edward Capps, before the Bank Acts Committee of 1857. He says there, no. 5435: ‘I think a man who wishes to rise in the world can hardly expect to rise by following out a fair trade… it is necessary for him to add speculative building to it, and that must be done not on a small scale;… for the builder makes very little profit out of the buildings themselves; he makes the principal part of the profit out of the improved ground-rents. Perhaps he takes a piece of ground, and agrees to give £300 a year for it; by laying it out with care, and putting certain descriptions of buildings upon it, he may succeed in making £400 or £450 a year out of it, and his profit would be the increased ground-rent of £100 or £150 a year, rather than the profit of the buildings which…, in many instances, he scarcely looks at at all.’
It should not be forgotten in this connection that after the leasehold has expired, and this is ninety-nine years at the most, the land together with all the buildings on it, and with a ground-rent that has in the meantime generally doubled, tripled or more, reverts from the speculative builder or his heir to the original ultimate landowner.
Rent of mines is determined just as is agricultural rent.
‘There are some of which the produce is barely sufficient to pay the labour, and replace, together with its ordinary profits, the stock employed in working them. They afford some profit to the undertaker of the work, but no rent to the landlord. They can be wrought advantageously by nobody but the landlord, who, being himself undertaker of the work, gets the ordinary profit of the capital which he employs in it. Many coalmines in Scotland are wrought in this manner, and can be wrought in no other. The landlord will allow nobody else to work them without paying some rent, and nobody can afford to pay any’ (Adam Smith, Book I, Chapter XI, II [p. 270]).
It is necessary to distinguish whether the rent flows from an independent monopoly price for the products or the land itself, or whether the products are sold at a monopoly price because there is a rent. By monopoly price here we mean any price determined simply by the desire and ability of the buyer to pay, independently of the price of the product as determined by price of production and value. A vineyard bears a monopoly price if it produces wine which is of quite exceptional quality but can be produced only in a relatively small quantity. By virtue of this monopoly price, the wine-grower whose excess over the value of his product is determined purely and simply by the wealth and the preference of fashionable wine-drinkers can realize a substantial surplus profit. This surplus profit, which in this case flows from a monopoly price, is transformed into rent and accrues in this form to the landowner by virtue of his title to the portion of the earth endowed with these special properties. Here, therefore, the monopoly price creates the rent. Conversely, the rent would create the monopoly price if corn were sold not only above its price of production but also above its value, as a result of the barrier that landed property opposes against the rent-free investment of capital on untilled land. The fact that it is only the title a number of people have to property in the earth that enables them to appropriate a part of society’s surplus labour as tribute, and in an ever growing measure as production develops, is concealed by the fact that the capitalized rent, i.e. precisely this capitalized tribute, appears as the price of land, which can be bought and sold just like any other item of trade. For the buyer, therefore, his claim to rent does not appear as something obtained for nothing, without labour, risk or the entrepreneurial spirit of capital, but rather as the return for his equivalent. Rent seems to him, as we have already noted, simply interest on the capital with which he has purchased the land, and with it the claim to rent. In exactly the same way, it appears to the slaveowner who has bought a Negro slave that his property in the Negro is created not by the institution of slavery as such but rather by the purchase and sale of this commodity. But the purchase does not produce the title; it simply transfers it. The title must be there before it can be bought, and neither one sale nor a series of such sales, their constant repetition, can create this title. It was entirely created by the relations of production. Once these have reached the point where they have to be sloughed off, then the material source, the economically and historically justified source of the title that arises from the process of life’s social production, disappears, and with it all transactions based on it. From the standpoint of a higher socio-economic formation, the private property of particular individuals in the earth will appear just as absurd as the private property of one man in other men. Even an entire society, a nation, or all simultaneously existing societies taken together, are not the owners of the earth. They are simply its possessors, its beneficiaries, and have to bequeath it in an improved state to succeeding generations, as boni patres familias.*
*
In the following analysis of the price of land we disregard all fluctuations due to competition, all speculation in land, and even petty landownership where the earth forms the major instrument of the producers and must therefore be bought by them at some price or other.
I. The price of land may rise without an increase in rent:
(1) merely through a fall in the rate of interest, which means that rent is sold more dearly, and so capitalized rent, the price of land, increases;
(2) because of a growth in the interest on the capital incorporated into the land.
II. The price of land may rise because the rent increases.
The rent may increase because the price of the product of the land rises, in which case the rate of differential rent always rises, whether the rent on the worst cultivated land is high, low or nonexistent. By the rate of differential rent we mean the ratio between the part of surplus-value that is transformed into rent, and the capital advanced to produce the agricultural product. This is different from the ratio between the surplus product and the total product, for the total product does not include all the capital advanced, i.e. it does not include the fixed capital, which continues to exist alongside the product. It is implied in this, however, that on those types of land that bear a differential rent a growing portion of the product is transformed into excess surplus product. On the worst land, it is the rise in price of the product of the land that creates rent for the first time and hence creates the price of land.
But rent can also grow without any rise in the price of the agricultural product. This can remain constant or even decline.
If it remains constant, rent may grow (leaving aside monopoly prices) because new lands of better quality are cultivated along with equally large capital investments on the older lands, which however are sufficient only to meet the increased demand, so that the governing market price remains unchanged. In this case, the price of the older lands does not rise, but the price of land newly taken up rises above that of the old.
Alternatively, however, rent may rise because with the relative yield remaining the same, and the market price too, the amount of capital exploiting the land grows. Thus even if the rent remains the same in relation to the Capital advanced, it might double in amount, say, because the capital itself has doubled. Since there is no fall in the price, the second capital investment yields a surplus profit just as much as the first, which is similarly transformed into rent once the term of the tenancy expires. The amount of rent here rises because the amount of capital producing rent does. The contention that different successive capital investments on the same stretch of land can produce a rent only in so far as their yield is uneven, and hence a differential rent arises, would imply that if two capitals of £1,000 each are invested on two fields of equal productivity only one of them can yield rent, even when these two fields belong to the better class of land which does yield a differential rent. (The sum of the rental, therefore, the total rent of a country, then grows with the amount of capital invested without a necessary rise in the price of the individual unit of land or in its rate or even mass of rent; the rental grows in its total amount in this case in line with the spatial expansion of agriculture. This can even be combined with a fall in the rent on individual holdings.) Were this not so, this contention would mean that capital investments on two different pieces of land alongside one another would obey different laws from successive capital investments on the same piece of land, although we have precisely derived differential rent from an identical law in both cases, from the growth in productivity of capital investment both on the same field and on different fields. The only modification here, which is overlooked, is that when successive capital investments are applied to land in different locations, they come up against the barrier of landed property, which is not the case with successive capital investments on the same land. This is the reason for the opposing tendencies by which these different forms of investment in practice set barriers to one another. There is no difference in the capital involved here. If the composition of capital remains the same, and similarly the rate of surplus-value, the rate of profit remains unaltered, so that with twice the capital there is twice the amount of profit. The rate of rent also remains the same under these conditions. If a capital of £1,000 yields a rent x, then under the conditions assumed here one of £2,000 yields a rent of 2x. But in relation to the area, it remains unchanged, since by our assumption the doubled capital working in the same field has also risen to its level as a result of the rise in the amount of rent. The same acre that previously brought in £2 rent now brings in £4. 41
The proportion of one part of the surplus-value, the money rent (for money is the independent expression of value), to the land is as it stands absurd and irrational; for it is incommensurable quantities that are measured against one another here, a particular use-value on the one hand, a piece of land of so and so many square feet, and value, in particular surplus-value, on the other. All this means in actual fact is that, under the given conditions, the ownership of these square feet of land enables the landowner to seize a certain amount of unpaid labour, which capital has realized by rooting in the soil like a pig in potatoes. Prima facie, however, the expression is as if one were to speak of the ratio of a £5 note to the diameter of the earth. But these irrational forms in which certain economic relationships appear and are grasped in practice do not bother the practical bearers of these relationships in their everyday dealings; since they are accustomed to operating within these forms, it does not strike them as anything worth thinking about. A complete contradiction holds nothing at all mysterious for them. In forms of appearance that are estranged from their inner connection and, taken in isolation, are absurd, they feel as much at home as a fish in water. What Hegel says about certain mathematical formulae applies here too, namely that what the common human understanding finds irrational is in fact rational, and what it finds rational is irrational.†
As far as the land area itself is concerned, a rise in the amount of rent is thus expressed in the same way as a rise in the rate of rent, hence the embarrassment when the conditions that would explain the one case are absent in the other.
But the price of land can rise even if the price of its product declines.
In this case, the differential rent may have increased by a further differentiation, and with it the price of the better lands. Or, if this is not the case, increased productivity of labour may have led to a fall in the price of the product, but with the increased production more than compensating for this. Assume that 1 qr costs 60s. If 2 qrs were produced on the same acre with the same capital instead of 1 qr, and the cost fell to 40s., then 2 qrs would fetch 80s., so that the value of the product of the same capital on the same acre would have risen by a third, even though the price per qr had fallen by a third. The way in which this is possible even though the product is not sold above its price of production or its value was expounded by us in dealing with differential rent. In actual fact, it is possible in only two ways. Either poor land is withdrawn from competition, but the price of the better land rises if the differential rent grows, so that the general improvement has had an uneven effect on the different types of land; or the same price of production on the worst land (and the same value, if absolute rent is paid) is expressed in a larger amount of product, on account of increased labour productivity. The product still represents the same value as before, but the price of its aliquot parts has fallen, while their number has increased. If the same capital is applied, this is impossible; for in that case the same value is always expressed in any portion of the product. It is possible, however, if an extra capital is invested for gypsum, guano, etc., i.e. for improvements whose effects extend over several years. The condition is that the price of the individual quarter, even though it falls, does not fall in the same ratio as the number of quarters grows.
III. These various conditions for a rise in rent, and hence either in the price of land in general or in that of particular types of land, may partly compete with one another, partly exclude one another, and may only take effect in alternation. But it follows from the above discussion that a rise in the price of land does not necessarily mean a rise in rent, and that a rise in rent, which always brings with it a rise in the price of land, does not invariably mean an increase in its products.42
*
Instead of returning to the actual natural causes for the exhaustion of land, which incidentally were unknown to any of the economists who wrote about differential rent, on account of the state of agricultural chemistry in their time, resort is made to the superficial conception that there is a limit to the amount of capital which can be invested in a spatially limited field, e.g. when the Edinburgh Review counters Richard Jones by saying that the whole of England cannot be fed by cultivating Soho Square. If this is seen as a particular disadvantage of agriculture, precisely the opposite is the case. Here successive capital investments can be made to bring fruit just because the earth itself functions as an instrument of production, which is not the case with a factory, where it functions only as the foundation, the site, the spatial basis of operations – or at least is only the case to a very small extent. It is certainly possible to concentrate a great productive installation in a small space, compared with fragmented handicraft production, and this is what modern industry does. But once the level of productivity is given, a certain space is always required, and building upwards also has its definite practical limits. Beyond these limits, an expansion of production also requires an expansion outwards. The fixed capital invested in machines, etc. is not improved by use; on the contrary, it depreciates. Here, too, particular improvements are possible as a result of new discoveries, but taking the development of productivity as given, a machine can only deteriorate. When productivity develops rapidly, the whole of the old machinery must be replaced by a more advantageous kind, and it is therefore lost. The earth, on the contrary, continuously improves, as long as it is treated correctly. The advantage of the earth, that successive capital investments can have their benefit without the earlier ones being lost, at the same time implies the possibility of a difference in yield between these successive capital investments.