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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