Given that it is the price of production on the least productive land that determines the market price of the whole agricultural product, this last can only rise in the case of either a fall in the average productivity of this land or the introduction of even less productive land into cultivation.

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In this chapter we consider differential rent II, ground-rent (transformed surplus profit) arising from changes in the amount of capital invested in the land, under conditions of a falling market price of the agricultural product. Again, as in the previous chapter, it is not that we are assuming a falling market price and then seeing what effect this has on other conditions; rather, we are looking at those patterns of additional capital investment under which the market price falls. In other words, it is the market price is that is the dependent variable here.

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In this chapter we consider differential rent II, ground-rent (transformed surplus profit) arising from changes in the amount of capital invested in the land (as distinct from differential rent I, ground-rent only arising from differences in land productivity), under conditions of a constant market price of the agricultural product. We are not assuming a constant market price; rather, we are looking at patterns of additional capital investment that leave the market price unchanged. Over the course of the chapter, we shall examine four different scenarios.

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We have so far considered equal amounts of capital invested on land types of varying fertility, and we have seen that, in these conditions and under our operating assumptions, the market price for the agricultural product will be determined by the production price obtaining on the least productive land type. On all the other land types, where the production price is therefore lower than the obtaining market price, a surplus profit will be realised; should the land in question not belong to the capitalist farmer, but to a landowner whom the farmer pays for the right to work the land, this surplus profit takes the form of ground-rent. Marx calls this rent ‘differential rent’ because it arises from differences in the productivity of the land. Even though Marx’s exposition here looks similar to Ricardo’s in the Principles, we should note that while for the latter the existence of differential rent was a function of the declining productivity of labour as increasingly poorer land was brought under cultivation, for Marx the only precondition for the existence of this form of differential rent is that lands of differing levels of productivity be under simultaneous cultivation.

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I  The nature of differential rent

If, in a given sector, there are different capitals who produce at different rates of profit, then there will be a sector-wide average rate of profit, above which some of the capitals produce at; if different capitals in a sector produce a different rate of profit then surplus profit necessarily exists. Different rates of profit arise in a sector if there are capitals that employ techniques of production that differ in their productivity. As we have seen, differential rent arises when a capital enjoys the use of a lower-cost (i.e. more productive) technique of production which is monopolisable. The surplus profit that arises in these circumstances is transformed into ground-rent.

In the case of capital applied to the land, the existence of varying levels of productivity means that the same amount of capital applied to the same hectarage of land produces an unequal product (because to produce the same product the hectarage would have to vary inversely with productivity).

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Marx assumes that the products that produce a rent (be these agricultural products or the products of, say, mining) are sold, as are all other commodities, at their prices of production: cost price (the variable and constant capital laid out) plus average profit. Out of this, a portion of the surplus-value embodied in the commodity passes to the landowner as rent. Marx’s first task here is to explain how this is possible.

Imagine an economic sector in which a single commodity is produced. The commodity is manufactured in two types of factory, the first (the overwhelming majority) powered by steam, and the second (a small minority) powered by waterfalls.

The prevailing rate of profit is 15%. The pre-unit cost price in the type of factory which uses steam as power is €100 (constant plus variable capital), which gives a per-unit price of production of €115.

However, let us also assume that the production method using waterfalls produces at a per-unit cost price of €90. What determines the market price? The price of production operative in the market ‘[…] 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 the whole sphere of production. It is […] the market price of production.’ The market price is set by the technique of production based on steam. Given this, if the producers using waterfalls sell at this market price, a per-unit €10 surplus profit will accrue.

But of course this is nothing new.

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The purpose of this chapter is to deal with those preliminary issues that Marx feels are important before beginning the analysis proper.

I  The object of enquiry

Marx sets out at the beginning that here he is interested in an analysis of landed property only insofar as it is dominated by the capitalist mode of production, i.e. that ‘rural production is pursued by capitalists, who are distinguished from other capitalists […] simply by the element in which their capital and the wage labour that it sets in motion are invested.’ If this is the case then this also presupposes that capitalist production dominates production in general and that there exists: (1) the free competition of capitals; (2) the free transferability of capital from one sector to another; (3) an equalised average rate of profit.

Hence, under these assumptions, the ‘three classes that make up the framework of modern society’ confront one another in agricultural production:

  • direct cultivation is carried out by wage-labourers, employed by:
  • the capitalist, who ‘pursues agriculture simply as a particular field of the exploitation of capital’, and who in turn pays ground-rent to:
  • the landowner, the proprietor of land.

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The monetary system is essentially Catholic, the credit system essentially Protestant. ‘The Scotch hate gold.’ As paper, the monetary existence of commodities has a purely social existence. It is faith that brings salvation. Faith in money value as the immanent spirit of commodities, faith in the mode of production and its predestined disposition, faith in the individual agents of production as mere personifications of self-valorising capital. But the credit system is no more emancipated from the monetary system as its basis than Protestantism is from the foundations of Catholicism.

Given the fragmentary nature of this part of the book, it may be useful to take a step back from the text and try to set out the key ideas in Marx’s (and Engels’) presentation in synthetic form.


* * *


We first need to be clear as to the distinction between money, on the one hand, and capital on the other. Money as money is the independent expression of a sum of value. Capital is value whose value is augmented in magnitude, is valorised. Money as capital – capital in money form – is thus money with the capacity of valorisation. But money as capital is only capital in virtue of what makes it capital, not in virtue of being money; and although capital may take the form of money, not all money is capital. The failure of the political economists of his time to grasp this distinction evidently infuriates Marx.

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I  The pre-capitalist origins of usurer’s capital

Both interest-bearing capital (i.e. usurer’s capital) and merchant’s capital long predate the capitalist mode of production.

Usurer’s capital requires nothing more for its existence than that at least a portion of the products is transformed into commodities and that money in its various functions develops concurrently with trade in commodities.

The development of usurer’s capital is bound up with that of merchant’s capital, and particularly with that of money-dealing capital. In ancient Rome, from the latter phases of the Republic onwards, although manufacture stood at a much lower level than the average for the ancient world, merchant’s capital, money-dealing capital and usurer’s capital – in the ancient form – were developed to their highest point.

The appearance of money necessarily leads to hoard formation; the hoarder becomes important as a money-lender. (The merchant, in turn, borrows money to make a profit with it, i.e. to use it as capital, and stands in the same relationship to the money-lender as does the producing capitalist.)

Pre-capitalist usurer’s capital has existed historically in two forms. First, in that of lending money to elites (essentially landed proprietors); second, in that of lending money to small producers – artisans, and, especially, peasants.  Through these two operations (‘the ruining of rich landed proprietors […] and the impoverishment of the small producers’), large money capitals are formed.

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Marx begins by noting that despite the intention that the Bank Act of 1844 transform the bullion reserve into means of circulation by seeking to compensate for a drain of gold by contracting the means of circulation and for an influx by expanding the means of circulation, it has never been successful in doing this. In the crisis of 1857 the quantity of notes in circulation exceeded the gold reserve by a daily average of £488,830; in all other occasions since 1844, however, the quantity of notes in circulation has never reached the maximum that the Bank was authorised to issue.

* * *

With regard to the international movement of precious metals, Marx makes the following points.

1 One needs to distinguish between the international trade in precious metals between countries, and that trade resulting from the movement of metal from where it is produced.
2 Among the non-producing countries, precious metals flow constantly back and forth. Any ultimate inflow or outflow is thus a net balance. ‘The matter is always conceived as if an excess import or export of precious metal were simply the effect and expression of the import and export relationship for commodities, whereas it also expresses a relationship between the import and export of precious metal that is independent of commodity trade.’
3 In general, the balance of preponderance of imports over exports is reflected by changes in the central bank’s metal reserves. This, however, depends on the extent of the centralisation of the banking system, on, in other words, to what degree the central bank’s reserves consist of the total amount of stockpiled metal; it also depends on the degree to which imported metal is used for purposes of circulation, or for luxury use.
4 ‘An export of metal takes the form of a “drain” if the movement of decline persists for a long period, so that the decline presents itself as a general tendency and the national bank’s metal reserve is significantly depressed below its average level, until something like its average minimum is reached.’
5 The metal reserve of a central bank has the following functions. First, it is a reserve fund for international payments (what Marx calls ‘a reserve fund of world money’); second, a reserve fund for expanding and contracting domestic metal circulation; and, third, a reserve fund for payment of deposits and convertibility of notes. ‘It can therefore also be affected by conditions that bear on only one of these three functions.’
6 Marx notes that business-cycle crises (presumably in Britain) tend to occur after a drain in gold has occurred, and then stopped.
7 Once a business crisis has passed, gold and silver are once again distributed in their previously existing proportions (the relative size of each country’s hoard being dependent on that country’s position in the world market). Once this redistribution is established, there occurs (again presumably in Britain) first a growth in the reserve, and then a drain.
8 ‘A drain of metal is generally the symptom of a change in the state of foreign trade, and this change is in turn an advance warning that conditions are again approaching a crisis.’

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