Capital: A Critique of Political Economy, Vol. III. The Process of Capitalist Production as a Whole
LET us assume that the demand for grain is rising, and that the supply cannot be made to cover the demand, unless successive investments of capital with deficient productivity are made upon the rent-paying soils, or by an additional investment of capital, likewise with a decreasing productivity, upon soil A, or by the investment of capital in new lands of a lesser quality than A.
Let us take soil B as a representative of the rent paying soils.
The additional investment of capital demands a rising of the market price above the prevailing price of production of 3 pounds sterling per quarter, in order that the increased production of one quarter (which may here stand for one million quarters, as may every acre for one million acres) upon B may be possible. An increased production may also take place upon soils C and D, etc., the soils paying the highest rent, but only with a decreasing power to produce a surplus; but it is assumed that the one quarter upon B must necessarily be produced in order to cover the demand. If this one quarter is more easily produced by investing more capital in B than with the same addition of capital to A, or by descending to soil A—1, which may, perhaps, produce one quarter only for 4 pounds sterling, whereas the additional capital upon A might do so at 3¾ pounds sterling per quarter, then the additional capital upon B will regulate the market price.
Let us also assume that A produces one quarter at 3 pounds sterling, as it did heretofore. Let B likewise, as before, produce altogether 3½ quarters at an individual price of production of 6 pounds sterling for its total output. Now, if an addition of 4 pounds sterling becomes necessary upon B (including the profit) in order to produce an additional quarter, whereas it might be produced upon A at 3¾ pounds sterling, then it would naturally be produced upon A, not upon B. Let us assume, then, that this additional quarter can be produced upon B with an additional cost of production of 3½ pounds sterling. In this case 3½ pounds sterling would become the regulating price for the entire production. B would now sell its product of 4½ quarters at 15¾ pounds sterling. The cost of production of the first 3½ quarters, or 6 pounds sterling, would have to be deducted from this, also that of the last quarter, or 3½ pounds sterling, total 9½ pounds sterling. This leaves a surplus profit for rent of 6¼ pounds sterling, as against the former 4½ pounds sterling. In this case one acre of A would also yield a rent of ½ pound sterling; but not the worst soil A, but the better soil B would regulate the price of production with 3½ pounds sterling. Of course we assume here that new soil of the quality of A is not accessible in the same favorable location as that hitherto cultivated, but that either a second investment of capital upon the already cultivated soil A is required at a higher cost of production, or the cultivation of still inferior soil, such as A—1. As soon as differential rent No. II comes into action by successive investments of capital, the limits of the rising price of production may be regulated by better soil, and the worst soil, the basis of differential rent No. I, may also carry a rent. Under these circumstances all cultivated lands would pay a rent under a mere differential rent system. We should then have the following two Tables, in which we mean by the term cost of production the sum of the invested capital plus 20% profit, in other words, on every 2½ pounds sterling of capital ½ pound sterling of profit, total 3 pounds sterling.
This is the condition of affairs, before the new capital of 3½ pounds sterling is invested in B, which supplies only one quarter. After this investment has been made, we have the following condition:,
[This, again, is not quite correctly calculate. The capitalist renter of B has to meet a cost of production of 9½ pounds sterling for the 4½ quarters and besides 4½ pounds sterling in rent, a total of 14 pounds sterling; average per quarter 3½ pounds sterling. This average price of his total production thus becomes the regulating market price. According to this the rent upon A would amount to 1/9 pound sterling instead of ½ pound sterling and that upon B would remain 4½ pounds sterling, as heretofore. 4½ quarters at 3½ pounds sterling make 14 pounds sterling, and if we deduct 9½ pounds sterling of cost of production we have 4½ pounds sterling left for surplus profit. We see, then, that in spite of the required change in figures this illustration shows the way in which the better rent paying soil, by means of differential rent No. II, may regulate the price and thus transform all soil, even a hitherto rentless one, into rent paying soil.—F. E.]
The grain rent must rise, as soon as the regulating price of production of the grain rises, that is, as soon as the quarter of grain rises upon the regulating soil, or the regulating investment of capital upon one of the various kinds of soil. It is the same as though all kinds of soil had become less productive, and as though they were producing only 5-7 quarter instead of one quarter with a new investment of 2½ pounds sterling. Whatever they produce more in grain with the same investment of capital, is converted into a surplus product, in which the surplus profit and with it the rent are incorporated. Assuming that the rate of profit remains the same, the capitalist renter will have to buy less grain with his profit. The rate of profit may remain the same, if the wages do not rise, either because they are depressed to the physical minimum, below the normal value of labor-power, or because the other things needed for consumption by the laborer and supplied by the manufacturer have become relatively cheaper; or because the working day has been prolonged or has become more intensive, so that the rate of profit in other than agricultural lines of production, which, however, regulates the agricultural profit, has remained the same or has risen; or, finally, because there may be more constant and less variable capital employed in agriculture, even though the total capital invested be the same.
Now we have considered the first condition in which rent may arise upon the worst soil A without taking still worse soil under cultivation; that is, in which rent may arise out of the difference between the old individual price of this land, which was hitherto the regulating price of production, and the new, higher, price of production, at which the last additional capital with less than normal productive power upon the better soil supplies the necessary additional product.
If the additional product had to be supplied by soil A—1, which cannot produce one quarter at less than 4 pounds sterling, then the rent would have risen to one pound sterling upon A. But in this case the soil A—1 would have taken the place of A as the worst cultivated soil, and A would have risen in the scale to the place of the lowest link in the series of rent paying soils. Differential rent No. I would have changed. This case, then, is outside of the consideration of differential rent II, which arises out of the different productivity of successive investments of capital upon the same piece of land.
But aside from this, differential rent may arise upon soil A in two other ways.
In the first place, it may arise so long as the price remains unchanged (any price, even a lower one compared to former ones), if the additional investment of capital creates a surplus product, which it must always do, on first sight, and up to a certain point, upon the worst soil.
In the second place, it may arise, if the productivity of the successive investments of capital upon soil A decreases.
The assumption in either case is that the increased production is required on account of the condition of the demand.
But from the point of view of differential rent, a peculiar difficulty arises here on account of the previously developed law, according to which it is always the individual average price of production per quarter in the total production (or the total investment of capital) which acts as the determining factor. In the case of soil A, however, it is not, as it is in the case of the better soils, a question of a price of production existing outside of it, which limits the equalization of the individual price of production and the general price of production, for new investments of capital. For the individual price of production of A is precisely the general price of production regulating the market price.
Let us assume:
1) When productive power of successive investments of capital is increasing, that one acre of A will produce 3 quarters instead of 2 quarters with an investment of 5 pounds sterling of capital, corresponding to 6 pounds sterling of cost of production. The first investment of 2½ pounds sterling supplies one quarter, the second 2 quarters. In this case 6 pounds sterling of cost of production will correspond to a product of 3 quarters, so that the average price of one quarter will be 2 pounds sterling. If the 3 quarters are sold at 2 pounds sterling per quarter, then A does not produce any rent any more than it did before. Only the basis of differential rent No. II has been altered. The regulating price of production is now 2 pounds sterling instead of 3 pounds. A capital of 2½ pounds sterling produces now an average of 1½ quarters upon the worst soil instead of 1 quarter, and this is now the official productivity for all better soils with an investment of 2½ pounds sterling. A portion of the ordinary surplus product now passes over into the formation of their necessary product, just as a portion of their surplus profit now passes over into the formation of the average profit.
But if the calculation is made as it is upon the better soils, where the average calculation does not alter anything in the absolute surplus, because the general price of production is the limit of the investment of capital, then one quarter of the first investment of capital costs 3 pounds sterling and the 2 quarters of the second investment costs only 1½ pounds sterling. This would give rise to a grain rent of one quarter and a money rent of 3 pounds sterling upon A, but the 3 quarters would be sold at the old price of 9 pounds sterling all together. If a third investment of 2½ pounds sterling of capital were made at the same productivity as the second investment, then the total production would be 5 quarters at 9 pounds sterling of cost of production. If the individual average price of A should remain the regulating price, then one quarter would be sold at 1 4/5 pound sterling. The average price would have fallen once more, not through a new rise of the productivity of the third investment of capital, but merely through the addition of a new investment of capital with the same additional productivity as the second one. Instead of raising the rent upon the rent paying soils, the successive investments of capital of a higher, but sustained, fertility upon the soil A would lower the price of production and with it the differential rent upon all other soils in the same proportion, under conditions remaining the same. On the other hand, if the first investment of capital, which produces one quarter at 3 pounds sterling, should remain in force by itself, then 5 quarters would be sold at 15 pounds sterling, and the differential rent of the later investments of capital upon soil A would amount to 6 pounds sterling. The additional capital per acre of soil A, whatever might be the manner of its application, would be an improvement in this case, and it would make the original portion of capital more productive. It would be nonsense to say that 1/3 of the capital had produced one quarter and the other 2/3 four quarters. For 9 pounds sterling per acre would always produce 5 quarters, while 3 pounds sterling would produce only one quarter. Whether a rent would arise here or not, whether a surplus profit would be made or not, would depend wholly upon circumstances. Normally the regulating price of production would fall. This would be the case, if this improved, but more expensive cultivation of soil A should take place only for the reason that it takes place upon all better soils, in other words, if a general revolution in agriculture should occur. And the assumption in that case would be that this soil is worked with 6 or 9 pounds sterling instead of 3 pounds. This would apply particularly, if the greater part of the cultivated acres of soil A, by which the bulk of the supply of this country is furnished, should be handled by this new method. But if the improvement should extend only to a small portion of the area of A, then this better cultivated portion would yield a surplus profit, which the landlord would be quick to transform wholly or in part into rent and fix permanently in the form of rent. In this way a rent might be gradually formed upon all soil of the A quality, in proportion as more and more of the area of this soil is taken under cultivation by the new method, and the surplus productivity might be confiscated wholly or in part, according to market conditions. The equalization of the price of production of soil A to the average price of its product at an increased investment might thus be prevented by the fixation of the surplus profit of this increased investment of capital in the form of rent. If so, this would be once again an illustration of the way in which the transformation of surplus profit into ground-rent, in other words, the intervention of property in land, raises the price of production, as we have already noticed in the case of the better soils upon which the productivity of the additional capitals decreased, so that here the differential rent would not be a mere result of the difference between the individual and the general price of production. It would prevent, in the case of soil A, the identification of both prices in one, because it would interfere with the regulation of the price of production by the individual price of production of A. It would maintain a higher price of production than the necessary one and thus create a rent. Even if grain were freely imported from abroad, the same result could be brought about or perpetuated by compelling the tenants to use soil capable of competing in the raising of grain at the price of production regulated from abroad for other purposes, for instance for pastures, so that only rent paying soils could raise grain, that is, only soils whose individual average price of production per quarter would be below the price of production determined from abroad. On the whole it may be assumed that the price of production will fall, but not to the level of its average. Rather will it be higher than the average, but below the price of production of the worst cultivated soil A, so that the competition of new lands of the class A is held back.
2) When the productive power of the additional capitals is decreasing, let us assume that soil A—1 can produce the additional quarter only at 4 pounds sterling, whereas soil A produces it at 3¾ pounds sterling, that is, more cheaply than the lesser soil, but still more dearly than the quarter produced by the first investment of capital upon it. In this case the total price of the two quarters produced upon A would be 6¾ pounds sterling, and the average price per quarter 3 3/8 pounds sterling. The price of production would rise, but only by 3/8 pounds sterling, whereas it would rise by another 3/8, or to 3¾ pounds sterling, if the additional capital were invested upon new soil, which could produce at 3¾ pounds sterling and thus bring about a proportional raise of all other differential rents.
The price of production of 3 3/8 pounds sterling per quarter of A would thus be brought to the figure of its average price of production with an increased investment of capital, and would be the regulating price; it would not yield any rent, because it would not produce any surplus profit.
However, if this quarter, produced by the second investment of capital, were sold at 3¾ pounds sterling, then the soil A would yield a rent of ¾ pound sterling, and it would do so upon all acres of A, even those with no additional investment of capital, which would still produce one quarter at 3 pounds sterling. So long as any uncultivated fields of A remain, the price could rise only temporarily to 3¾ pounds sterling. The competition of new fields of A would hold the price of production at 3 pounds sterling, until all lands of the A class would be exhausted, whole favorable location would enable them to produce a quarter at less than 3¾ pounds sterling. This would be a likely assumption, although the landlord will not let any tenant have any land free of rent, if one acre of A pays rent.
It would depend once more upon the greater or smaller generalization of the second investment of capital in the available soil A, whether the price of production shall be brought down to an average or whether the individual price of production of the second investment of capital shall be regulating at 3¾ pounds sterling. This last case will take place only when the landlord gets time to fix the surplus profit, which would be made until the demand would be satisfied at the price of 3¾ pounds sterling, permanently in the form of rent.
Concerning the decreasing productivity of the soil with successive investments of capital, see Liebig. We have seen that the successive decrease of the surplus productive power of the investments of capital always increases the rent per acre, so long as the price of production remains the same, and this may take place even when the price of production is falling.
But in a general way the following remarks may be made.
From the point of view of the capitalist mode of production there is always a relative increase in the price of products, when a product cannot be secured unless an expense is incurred, a payment made, which did not have to be met formerly. For by a reproduction of the capital consumed in production we mean only the reproduction of values, which were represented by certain means of production. Natural elements passing into production as agencies, no matter what role they play in production, do not enter into the problem as parts of capital, but as free gifts of nature to capital, that is, as a free natural productivity of labor, which, however, appears as a productive power of capital, as do all other productive powers under the capitalist system. Therefore, if such a natural power, which originally does not cost anything, takes part in production, it does not count in the determination of prices, so long as the product supplied by its help suffices for the demand. But if a larger product is demanded than that which can be supplied by the help of this natural power, so that the additional product must be created without this power, or by assisting it with human labor power, then a new additional element enters into capital. A relatively larger investment of capital is required for the purpose of securing the same product. All other circumstances remaining the same, the price of the product is raised.
(From a manuscript "Started about the Middle of February, 1876.")
Differential Rent and Rent as a mere interest on capital invested in the soil.
The so-called permanent improvements—which change the physical, and in part also the chemical, condition of the soil by means of operations requiring an expenditure of capital, and which may be regarded as an incorporation of capital in the soil—nearly all amount to giving to a certain piece of land in a certain limited locality such qualities as are possessed by some other piece of land at some other locality, sometimes quite near to the other one, by nature. One piece of land is by nature level, another has to be leveled; one possesses natural drainage, another has to be drained artificially; one has naturally a deep top soil, another must be artificially deepened; one clay soil is naturally mixed with a proper modicum of sand, another has to be treated for the purpose of making it so; one meadow is irrigated or moistened naturally, another requires labor to get it into this condition, or in the language of bourgeois economists, it requires capital.
It is indeed a very exhilarating theory, which calls rent by the name of interest in the case of one piece of land, whose comparative advantages have been acquired, whereas it does not do so in the case of a piece of land which has the same advantages naturally. (As a matter of fact, this is distorted in practice into saying that because rent really coincides in the one case with interest, it must falsely be called interest in cases where this is positively not the case.) However, the land yields a rent after the investment of capital, not because capital has been invested, but because the investment of capital makes this land more productive than it was formerly. Assuming that all land requires this investment, then every piece of land which has not received it must first pass through this stage, and the rent which the soil already endowed with capital yields (the interest which it may pay in a certain case), constitutes as much a differential rent as though it possessed this advantage by nature and the other land had to acquire it artificially.
This rent, which may be resolved into pure interest, becomes altogether a differential rent, as soon as the invested capital is sunk in the land. Otherwise the same capital would have to appear twice as capital.
It is one of the most amusing incidents, that all opponents of Ricardo, who combat the determination of value exclusively by labor, criticize in the case of differential rent arising from differences of soil the determination of value by nature instead of by labor. But at the same time they credit the location of the land with this determination, or perhaps, even more, the interest on capital sunk in the land during its cultivation. The same labor produces the same value in the product created during a certain time. But the magnitude, or the quantity, of this product, and consequently also that portion of value, which falls upon some aliquot part of this product, depends only upon the quantity of the product, so long as the quantity of labor is given, and the quantity of the product, in its turn, depends upon the productivity of the given quantity of labor, not upon the size of this quantity. It is immaterial, whether this productivity is due to nature or to society. Only in the case in which the productivity costs labor, and consequently capital, does it increase the cost of production by a new element, but this is not the case with nature alone.
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