Archive for the ‘Capital Volume 3, Part 6: The Transformation of Surplus Profit into Ground-Rent’ Category

The governing assumption in this chapter (referred to in the title of the chapter) is that the production price of the highest-cost land – and hence the market price for all product – is constant. In this context, Marx considers four different patterns of productivity for the additional capital invested on the other – lower-cost – lands, and inter alia makes an important digression.

Before we look at this, however, it would be useful to remind ourselves of some of the relations we identified in the previous chapter.

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In order to follow Marx’s (sometime tortuous) argument here, it would be worth reminding ourselves of what we know about differential rent up to now.

The market price of agricultural product (disregarding the play of supply and demand) is determined by the price of production – cost price (capital laid out) plus (economy-wide) average profit – on the least productive land type under cultivation (productivity, for simplicity’s sake, here being reduced to soil fertility). This price of production is the ‘governing’ price of production for it is the market price at which all of the product of all land types sells at. It is assumed that the product of the worst soil type does not overshoot social demand; if it did, the market price would fall below the price of production on this soil, and an average profit would not be realised. Under these conditions, capital would be withdrawn (or enter relatively less rapidly) from agricultural production on this land, reducing the supply relative to demand, forcing the price down until it reached the price of production of this soil, and an average profit is realised. On all other – more productive, lower-cost – land types, because they are more productive, the price of production stands below market price; as a consequence, on these lands a surplus profit is realised in addition to average profit. Were land like any other reproducible technique of production, then, over time, and all else being equal, production here would be expanded at the expense of the less productive techniques, forcing the market price down. The point is that here it is assumed that more productive land is a finite resource, and cannot be reproduced without limits. The owners of more productive soil types as a consequence find themselves in a position of monopoly control over a non-reproducible technique of production. That is why a perennial surplus profit accrues on all land types other than the least productive under cultivation; this surplus profit takes the form of ground-rent, independently of whether it accrues to a capitalist farmer who also owns her own land or to a landowner functionally separated from the working farmer through land ownership.

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I  The nature of differential rent

Surplus profit exists if different capitals in a sector produce a different rate of profit. 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.

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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 at their prices of production: cost price (the variable and constant capital laid out) plus average profit. Out of this, a portion passes to the landowner as rent. Marx here explains 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.

Let us assume a production price of €115 per unit in the branch or production that uses steam as power, consisting of €100 capital (cost price) plus €15 profit. ‘This production price […] 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.’

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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.

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