Capital: A Critique of Political Economy, Vol. III. The Process of Capitalist Production as a Whole
By Karl Marx
One of Econlib’s aims is to put online the most significant works in the history of economic thought, and there can be no doubting the significance of Marx’s influence on both economic theory in the late 19th century and on the creation of Marxist states in the 20th century. From the time of the emergence of modern socialism in the 1840s (especially in France and Germany), free market economists have criticised socialist theory and it is thus useful to place that criticism in its intellectual context, namely beside the main work of one of its leading theorists,
Karl Marx.In 1848, when Europe was wracked by a series of revolutions in which both liberals and socialists participated and which both lost out to the forces of conservative monarchism or Bonapartism,
John Stuart Mill published his
Principles of Political Economy. The chapter on Property shows how important Mill thought it was to confront the socialist challenge to classical liberal economic theory. In hindsight it might appear that Mill was too accommodating to socialist criticism, but I would argue that in fact he offered a reasonable framework for comparing the two systems of thought, which the events of the late 20th century have finally brought to a conclusion which was not possible in his lifetime. Mill states in
Book II Chapter I “Of Property” that a fair comparison of the free market and socialism would compare both the ideal of liberalism with that of socialism, as well as the practice of liberalism versus the practice of socialism. In 1848 the ideals of both were becoming better known (and there were some aspects of the ideal of socialism which Mill found intriguing) but the practice of each was still not conclusive. Mill correctly observed that in 1848 no European society had yet created a society fully based upon private property and free exchange and any future socialist experiment on a state-wide basis was many decades in the future. After the experiments in Marxist central planning with the Bolshevik Revolution in 1917, the Chinese Communists in 1949, and numerous other Marxist states in the post-1945 period, there can be no doubt that the reservations Mill had about the practicality of fully-functioning socialism were completely borne out by historical events. What Mill could never have imagined, the slaughter of tens of millions of people in an effort to make socialism work, has ended for good any argument concerning the Marxist form of socialism.Econlib now offers online two important defences of the socialist ideal, Karl Marx’s three volume work on
Capital and the
collection of essays on Fabian socialism edited by George Bernard Shaw. These can be read in the light of the criticism they provoked among defenders of individual liberty and the free market: Eugen Richter’s anti-Marxist
Pictures of the Socialistic Future, Thomas Mackay’s
2 volume collection of essays rebutting Fabian socialism,
Ludwig von Mises post-1917 critique of
Socialism. One should not forget that
Frederic Bastiat was active during the rise of socialism in France during the 1840s and that many of his essays are aimed at rebutting the socialists of his day. The same is true for Gustave de Molinari and the other authors of the
Dictionnaire d’economie politique (1852). Several key articles on communism and socialism from the
Dictionnaire are translated and reprinted in Lalor’s
Cyclopedia.For further reading on Marx’s
Capital see David L. Prychitko’s essay
“The Nature and Significance of Marx’s
Capital: A Critique of Political Economy“.For further readings on socialism see the following entries in the
Concise Encyclopedia of Economics:
Poor Law Commissioners’ Report of 1834,
edited by Nassau W. Senior, et al.
March 1, 2004
Frederick Engels, ed. Ernest Untermann, trans.
First Pub. Date
Chicago: Charles H. Kerr and Co.
First published in German. Das Kapital, based on the 1st edition.
The text of this edition is in the public domain. Picture of Marx courtesy of The Warren J. Samuels Portrait Collection at Duke University.
- Preface, by Frederick Engels
- Part I, Chapter 1
- Part I, Chapter 2
- Part I, Chapter 3
- Part I, Chapter 4
- Part I, Chapter 5
- Part I, Chapter 6
- Part I, Chapter 7
- Part II, Chapter 8
- Part II, Chapter 9
- Part II, Chapter 10
- Part II, Chapter 11
- Part II, Chapter 12
- Part III, Chapter 13
- Part III, Chapter 14
- Part III, Chapter 15
- Part IV, Chapter 16
- Part IV, Chapter 17
- Part IV, Chapter 18
- Part IV, Chapter 19
- Part IV, Chapter 20
- Part V, Chapter 21
- Part V, Chapter 22
- Part V, Chapter 23
- Part V, Chapter 24
- Part V, Chapter 25
- Part V, Chapter 26
- Part V, Chapter 27
- Part V, Chapter 28
- Part V, Chapter 29
- Part V, Chapter 30
- Part V, Chapter 31
- Part V, Chapter 32
- Part V, Chapter 33
- Part V, Chapter 34
- Part V, Chapter 35
- Part V, Chapter 36
- Part VI, Chapter 37
- Part VI, Chapter 38
- Part VI, Chapter 39
- Part VI, Chapter 40
- Part VI, Chapter 41
- Part VI, Chapter 42
- Part VI, Chapter 43
- Part VI, Chapter 44
- Part VI, Chapter 45
- Part VI, Chapter 46
- Part VI, Chapter 47
- Part VII, Chapter 48
- Part VII, Chapter 49
- Part VII, Chapter 50
- Part VII, Chapter 51
- Part VII, Chapter 52
[A RISING price of production presupposes that the productivity of the least productive quality of land, which pays no rent, decreases. The regulating price of production cannot rise above 3 pounds sterling per quarter, unless the 2½ pounds sterling invested in soil A produce less than one-quarter, or the 5 pounds sterling less than two-quarters, or unless, even inferior soil than A has to be taken under cultivation.
If the productivity of the second investment of capital should remain the same, this would be possible only in the case that the productivity of the first investment of capital would have decreased. This case occurs often enough. It happens, for instance, when the top soil, exhausted and superficially plowed, produces inferior crops with the old style of cultivation, and when the subsoil, thrown up by deeper plowing, produces better crops than formerly under a more rational treatment. But strictly speaking this special case does not belong here. The falling off in the productivity of the first investment of 2½ pounds sterling implies for the superior soils, even when conditions with them should be analogous, a decrease of the differential rent No. I; but here we are considering only differential rent No. II. Since the present special case cannot occur without the previous existence of differential rent No. II, but represents in fact a reaction of a certain modification of differential rent No. I upon No. II, we will give and illustration of it.
The money rent, and the yield in money, are the same as in Table II. The increased regulating price of production makes up exactly for what has been lost in the quantity of the product; since both of them vary in an inverse proportion, it is a matter of course that the product of both will remain the same.
In the above case we had assumed that the productive power of the second investment of capital was higher than the original productivity of the first investment. The matter remains the same, if we assume that the second investment has only the same productivity as that of the first, as shown in the following:
Here likewise the rising of the price of production at the same ratio fully compensates for the decrease in the productivity both in the yield and rent in money.
The third case shows itself in its pure form only when the second investment of capital declines in its productivity, while that of the first remains constant, as assumed everywhere
in the first and second cases. Here differential rent No. I is not touched, the change affects only that part which arises from differential rent No. II. We give below two illustrations: In the first we assume that the productivity of the second investment of capital has been reduced by one-half, in the second by one-fourth.
Table IX is the same as Table VIII, only that the decrease in productivity in VIII falls upon the first investment of capital, and in IX upon the second investment of capital.
In this table, likewise, the total yield, the money rental, and the rate of rent remain the same as in Tables II, VII and VIII, because the product and the selling price have once more varied in an inverse proportion, while the invested capital has remained the same.
But how do matters stand in the other case, which is possible with a rising price of production, namely in the case that a soil, which so far was too poor to be cultivated, is taken under cultivation?
Let us suppose that such a soil, which we will designate by a, is entering into competition. Then the hitherto rentless soil A would yield a rent, and the foregoing Tables VII, VIII and X would assume the following forms:
By the interpolation of soil
a there arises a new differential rent No. I. Upon this new basis differential rent No. II likewise develops in an altered form. The soil
a has a different fertility in every one of the above three Tables. The
series of successively increasing productivities begins only with soil A. The series of rising rents corresponds to this. The rent of the least rent producing soil forms a constant magnitude, which is simply added to all higher rents; only after the deduction of this constant magnitude does the series of differences clearly appear among the higher rents, and so does its parallelism with the succession of fertilities of the various kinds of soil. In all Tables, the fertilities from A to D have a proportion of 1: 2: 3 : 4, and the rents are correspondingly in VIIa as 1 : 1+7 : 1+2×7 : 1+3×7, in VIIIa as 1 1/5 : 1 1/5 + 7 1/5 :1 1/5 : 2×7 1/5 :1 1/5 + 3×7 1/5, and in Xa as 2/3 : 2/3 + 6 2/3 : 2/3 + 2×6 2/3 : 2/3 + 3×6 2/3. In brief, if the rent of A = n, and the rent of the soil of next higher fertility = n + m, then the series is as n : n +m : n + 2m : n + 3m, etc.—F. E.]
[Since the foregoing third case had not been elaborated in the manuscript, only its title being there, the editor had to supplement the work as he did above. It remains now to draw the general conclusions following from the entire foregoing analysis of differential rent in its three principal cases and nine subcases. The illustrations chosen in the manuscript do not suit this purpose very well. In the first place, they compare pieces of land, equal portions of which have yields at the ratio of 1 : 2 : 3 : 4. These are differences, which strongly exaggerate and which lead to utterly forced results in the further development of the assumptions and calculations made upon this basis. In the second place, these proportions create a wrong impression. If degrees of fertility of the proportion 1 : 2 : 3 : 4, etc., produce rents in a series of 0 : 1 : 2 : 3 : 4, etc., one feels tempted to derive the second series from the first and to explain the duplication, triplication, etc., of the rents out of the duplication, triplication, etc., of the total yields. But this would be wholly incorrect. The rents show proportions like that of 0 : 1 : 2 : 3 : 4 even when the degrees of fertility are proportioned as n : n + 1 : n +
2 : n + 3 : n + 4; the rents are not proportioned as the degrees of fertility, they are rather proportioned as the differences of fertility, beginning with the rentless soil as a zero point.
The tables of the original had to be given for the illustration of the text. But in order to obtain a suitable basis for the following results of our analysis, I present below a new series of tables, in which the yields are indicated in bushels (1/8 quarter or 36.35 liters) and shillings.
The first of these tables, Table XI, corresponds to the former Table I. It shows the yields and rents for five qualities of soil, A to E, with a first investment of a capital of 50 shillings, which makes a profit of 10 shillings, so that the total cost of production per acre is 60 shillings. The yields in grain are placed at low figures, 10, 12, 14, 16, 18 bushels per acre. The resulting regulating price of production is 6 shillings per bushel.
The following 13 tables correspond to the three cases of differential rent No. II, with an additional investment of a capital of 50 shillings per acre upon the same soil, with a constant, falling and rising price of production. Every one of these cases, again, is represented as it turns out, 1) with a constant, 2) with a falling, 3) with a rising productivity of the second investment of capital as compared to the first. This results furthermore in a few other cases, which are presented separately.
In case I, with a constant price of production, we have:
Variant No. 1: The productivity of the second investment of capital remains the same (Table XII.)
Variant No. 2: The productivity declines. This can take place only when soil A receives no second investment of capital, and it may take place in such a way that
a) the soil B likewise produces no rent (Table XIII), or,
b) the soil B does not lose all rent (Table XIV).
Variant No. 3: The productivity increases. (Table XV.) This case likewise excludes a second investment of capital upon soil A.
Variant No. 1: The productivity of the second investment of capital remains the same (Table XVI).
Variant No. 2: The productivity declines (Table XVII). These two variants are conditioned upon the throwing of soil A out of competition, and soil B producing no rent and regulating the price of production.
Variant No. 3: The productivity increases (Table XVIII). In this case the soil A remains the regulator.
In case III, with a rising price of production, two eventualities are possible; soil A may remain without rent and regulate the price, or, an inferior class of soil than A enters into competition and regulates the price, in which case A produces a rent.
First eventuality: Soil A remains the regulator.
Variant No. 1: The productivity of the second investment remains the same (Table XIX). This will happen under the conditions assumed by us only when the productivity of the first investment decreases.
Variant No. 2: The productivity of the second investment decreases (Table XX). This does not exclude the possibility that the first investment may retain the same productivity.
Variant No. 3: The productivity of the second investment (Table XIX) increases; this, again, presupposes a falling productivity of the first investment.
Second eventuality: An inferior quality of soil (designated as
a) enters into competition; soil A yields a rent.
Variant No. 1: The productivity of the second investment remains the same (Table XXII).
Variant No. 2: The productivity declines (Table XXIII).
Variant No. 3: The productivity increases (Table XXIV).
These three variants appear under the general conditions of the problem and require no further remarks.
When a second investment is placed upon the same soil, we have the following eventualities:
First Case: The Price of production remains unaltered.
Variant No. 1: The productivity of the second investment remains the same.
Second case: The price of production declines.
Variant No. 1: The productivity of the second investment of capital remains the same. Soil A is thrown out of competition, soil B loses its rent.
Third Case: The price of production rises.
A) If soil A remains without rent and continues to regulate the price.
Variant No. 1: The productivity of the second investment of capital remains the same; this implies a decreasing productivity of the first investment of capital.
B) If an inferior soil (designated as
a) becomes the regulator of prices and soil A produces a rent. This admits of a constant productivity of the second investment in the case of all variants.
Variant No. 1: The productivity of the second investment of capital remains the same.
These tables lead to the following conclusions:
In the first place they show that the series of rents maintains the same proportions as the series of degrees of fertility, taking the rentless regulating soil as the zero point. Not the absolute yields, but only the differences in yield are the determining elements of rent. Whether the different kinds of soil produce 1, 2, 3, 4, 5 bushels, or whether they produce 11, 12, 13, 14, 15, bushels of yield per acre, the rents are in both cases seriatim 0, 1, 2, 3, 4, bushels, or money to that amount.
But the result of our analysis is far more important with respect to the total yields of rent with a repeated investment of capital upon the same soil.
In five cases out of the analysed thirteen the total amount of the rents is doubled with the duplication of the investment of capital; instead of 10 times 12 shillings it becomes 10 times 24 shillings, or 240 shillings. These cases are:
Case I, constant price, Variant No. 1, the increase of productivity remaining the same (Table XII).
Case II, falling price, Variant No. III: increasing expansion of production (Table XVIII).
Case III, increasing price, first eventuality, where soil A remains the regulator, in all three Variants (Tables XIX, XX, and XXI).
In four cases the rent increases by more than double, namely:
Case I, Variant No. III, constant price, increasing expansion of production (Table XV). The amount of the rent rises to 330 shillings.
Case III, second eventuality, where soil A produces a rent, in all three variants (Table XXII, rent 15 times 30 = 450 shillings; Table XXIII, rent 5 times 20 plus 10 times 28 = 380 shillings; Table XXIV, rent 5 times 15 plus 15 times 33 1/3 = 581¼ shillings).
In one case the rent rises, but not to double the amount of the rent produced by the first investment of capital:
Case I, constant price, Variant II: falling productivity of the second investment, under conditions, in which B does not wholly lose its rent (Table XIV, rent 4 times 6 plus 6 times 21 = 150 shillings).
Finally, it is only in three cases that the total rent, with a second investment upon all kinds of soil, remains at the same level as with the first investment (Table XI); these are the cases, in which the soil A is thrown out of competition and soil B becomes the regulator and pays no rent. In this case the rent B is not only lost, but is also deducted from every succeeding link of the rent series. This is the basis of the above result. We mean the following cases:
Case I, Variant II, when the conditions are such that soil A is eliminated (Table XIII). The sum of the rent is six times twenty, or 10×12 = 120, as in Table XI.
Case II, Variants I and II. Here soil A is necessarily eliminated, according to the assumption (Tables XVI and XVII) and the sum of the rent is again 6×20 = 10×12 = 120 shillings.
This is to say: In the great majority of all possible cases the rent rises, both per acre of the rent paying soils and for the total amount, as a result of an increased investment of capital upon the land. Only in three cases out of the thirteen analysed cases the total amount of the rent remains unaltered. These are the cases, in which the lowest quality of soil, which hitherto paid no rent, drops out of competition and the next higher one takes its place and loses its rent. But even in these cases do the rents upon the superior soils rise in comparison to the rents due to the first investment. When the rent of C falls from 24 to 20, then that of D and E rises from 36 to 48 respectively to 40 and 60 shillings.
A fall of the total rents below the level of the first investment of capital (Table XI) would be possible only in the case that soil B as well as soil A would drop out of competition and soil C become regulating and rentless.
The more capital is applied to a certain soil, and the higher the development of agriculture and of civilization in general is in a certain country, the more do the rents rise per acre and per total amount of rental, and the more immense becomes the tribute paid by society to the great land owners in the form of surplus profits—so long as the different soils taken under cultivation remain capable of competition.
This law explains the wonderful vitality of the class of great landlords. No social class lives so sumptuously, no other claims like it a right to a traditional luxury in keeping with its “estate,” regardless of where the money for that purpose may come from, no other class piles debt upon debt as lightheartedly as it. And yet it always lands on its feet—thanks to the capital invested by other people in the soil, whereby the landlord collects a rent, which stand in no proportion to the profits to be drawn out of the soil by the capitalist.
However, the same law also explains, why the vitality of the great landlord is gradually exhausted.
When the English corn taxes were abolished in 1846, the English manufacturers believed that they had transformed the landowning aristocracy into paupers. Instead of that they
became richer than ever. How did that happen? Very simple. In the first place, the renting capitalists were now compelled by contract to invest 12 pounds sterling annually instead of 8 pounds, as heretofore. And in the second place, the landlords, being strongly represented also in the Lower House, granted to themselves a heavy subsidy for the drainage and other permanent improvements of their lands. Since no total displacement of the worst soil took place, but at the worst a temporary employment of such soil for other purposes, the rents rose in proportion to the increased investment of capital, and the landed aristocracy were better off than ever before.
But everything is perishable. The transoceanic steamboats and the railroads of North and South America and India enabled very peculiar masses of land to enter into competition upon the European grain markets. There were on the one hand the North American prairies, the Argentine pampas, steppes, made fertile for the plow by nature itself, virgin soil, which offered rich harvest for years to come even with a primitive cultivation and without any fertilization. Then there were the lands of the Russian and Indian communes, that had to sell a portion of their product, and an increasing one at that, for the purpose of obtaining money for the taxes wrung from them by the pitiless despotism of the state, very often by means of torture. These products were sold without regard to their cost of production, sold at the price offered by the dealer, because the peasant had to have money under all circumstances when tax paying day came around. And against the competition of the virgin prairie soils and of the Russian and Indian peasants ground down by taxation, the European capitalist farmer and peasant could not stand up at the old rents. A portion of the soil of Europe fell definitely out of the competition for the raising of grain, the rents fell everywhere. Our second case Variant II (falling prices and falling productivity of the additional investment of capital) became the rule for Europe. This accounts for the woes of the landlords from Scotland to Italy, and from Southern France to Eastern Prussia. Fortunately all prairie lands
have not been taken under cultivation. There are enough of them left to ruin all the great landlords of Europe and the small ones into the bargain.—F. E.]
The heads, under which rent is to be analyzed, are the following:
A. Differential rent.
1) Meaning of differential rent. Illustration by water power. Transition to real agricultural rent.
2) Differential rent No. I, arising from different fertilities of different pieces of land.
3) Differential rent No. II, arising from successive investments of capital upon the same soil. Differential rent No. II is to be analysed
a) with a stationary price of production.
b) with a falling price of production.
c) with a rising price of production.
d) the transformation of surplus profit into rent.
4) Influence of this rent upon the rate of profit.
B. Absolute rent.
C. The price of land.
D. Final Remarks concerning ground rent.
As the general result of our analysis of differential rent we come to the following conclusions:
1) The formation of surplus profits may take place in different ways. On the one hand it may come about by the help of differential rent No. I, that is, by an investment of the entire agricultural capital upon one soil area consisting of soils of different fertilities. Or, it may come about by means of differential rent No. II, that is by means of the varying differential productivity of successive investments of capital upon the same soil, which signifies here a greater productivity, say in wheat measured by quarters, than is secured with the same investment of capital upon the worst
rentless soil, which regulates the price of production. But no matter how these surplus profits may arise, their transformation into rents, their transfer from the capitalist farmer to the landlord, always presupposes that the various individual prices of production represented by the partial products of the individual capitals invested in succession (independently of the general price of production by which the market is regulated) have previously been reduced to an individual average price of production. The excess of the general regulating price of production of the product of one acre over its individual average price, forms and measures the rent per acre. In differential rent No. I the differential results may be distinguished by themselves, because they take place upon differentiated portions of land lying side by side, with an investment of capital and a degree of cultivation considered normal per acre. In differential rent No. II they must first be made distinguishable; they must in fact be reconverted into differential rent No. I, and this cannot take place in any other but the indicated way. Take for instance Table III, Chapter XLI, 3.
Soil B gives for the first investment of capital 2½ pounds sterling 2 quarters per acre, and for the second equally large one 1½ quarters; together 3½ quarters upon the same acre. These 3½ quarters do not show what part of them is a product of the investment of capital No. I and what part a product of capital No. II, for they are all grown upon the same soil. They are in fact the product of the total capital of 5 pounds sterling; and the actual condition of the matter is that a capital of 2½ pounds sterling produced 2 quarters, and a capital of 5 pounds sterling produced only 3½ quarters, not 4 quarters. The case would be just the same, if these 5 pounds sterling were producing 4 quarters, so that the proceeds of both investments of capital would be the same, or even 5 quarters, so that the second investment of capital would yield a surplus of 1 quarter. The price of production of the first 2 quarters is 1½ pounds sterling per quarter, and that of the second 1½ quarters is 2 pounds sterling per quarter. Consequently the 3½ quarters together cost 6 pounds sterling.
This is the individual price of production of the total product, and it makes an average of 1 pound and 14 2/7 shillings per quarter, in round figures 1¾ pounds sterling. With the average price of production regulated by soil A, namely 3 pounds sterling, this makes a surplus profit of 1¼ pounds sterling per quarter, and for the total 3½ quarters profit of 4 3/8 pounds sterling. With the average price of production of B this is represented by about 1½ quarters. In other words, the surplus profit of B is represented by an aliquot portion of the product of B, by these 1½ quarters, which express the rent in terms of grain, and which under the prevailing price of production sell at 4½ pounds sterling. But on the other hand, the surplus product of one acre of B compared to that of A is not without ceremony a formation of surplus profit, is not offhand a surplus product. According to our assumption one acre of B produces 3½ quarters, whereas one acre of A produces only 1 quarter. The surplus of the product of B is, therefore, 2½ quarters, but the surplus product is only 1½ quarters; for the capital invested in B is twice that of A, and for this reason its cost of production is doubled. If soil A should also receive an investment of 5 pounds sterling, and the rate of productivity should remain the same, then the product would amount to 2 quarters instead of 1 quarter, and it would then be seen that the actual surplus product is found, not by a comparison of 3½ with 1, but of 3½ with 2, so that it would be only 1½ quarter, not 2½ quarters. Furthermore, if B should invest a third capital of 2½ pounds sterling, which would produce only 1 quarter, so that this quarter would cost 3 pounds sterling, the same as that of A, then its selling price would cover only the cost of production, would yield only the average profit, but not a surplus profit, and would not offer anything that could be converted into rent. The product per acre of any kind of soil, compared with the product per acre of soil A, shows neither whether it is a product of the same or of a larger investment of capital, nor whether the additional product covers merely the price of production, nor whether it is due to a greater productivity of the additional capital.
2) With a decreasing rate of productivity of the additional investments of capital, whose limits, so far as the new formation of surplus profit is concerned, is that investment of capital which just covers the cost of production, in other words, which produces one quarter at the same expense as the same investment of capital in one acre of soil A, amounting to 3 pounds sterling according to our assumption, we come to the following conclusions on the basis of what has gone before: That the limit, where the total investment of capital in one acre of B would not yield any more rent, is reached when the individual average price of production of the product per acre of B would rise to the price of production per acre of A.
If B invests only such additional capital as pays just the price of production, but forms no surplus profit, no rent, then this raises only the individual average price of production per quarter, but does not affect the surplus profit, or eventually the rent, formed by previous investments of capital? For the average price of production always remains under that of A, and when the excess over the price per quarter decreases, then the number of quarters increases in the same ratio, so that the total excess over the price remains unaltered.
In the case assumed, the first two investments of capital of 5 pounds sterling produce 3½ quarters upon B, which amounts to 1½ quarters of rent, at 4½ pounds sterling, according to our assumption. Now, if a third investment of capital of 2½ pounds sterling is added, which produces only one additional quarter, then the total price of production (including a profit of 20%) of the 4½ quarters is 9 pounds sterling, so that the average price per quarter is 2 pounds sterling. The average price of production per quarter upon B has then risen from 1 5/7 pounds sterling to 2 pounds sterling, so that the surplus profit per quarter, compared with the regulating price of A, has fallen from 1 2/7 pounds sterling to 1 pound sterling. But 1 × 4½ = 4½ pounds sterling, just as formerly 1 2/7 × 3½ = 4½ pounds sterling.
upon B, and that these investments produce one quarter only at its average price of production, then the total product per acre would by 6½ quarters, and their cost of production 15 pounds sterling. The average price of production per quarter of B would have risen once more, from 1 pound sterling to 2 4/13 pound sterling, and the surplus profit per quarter, compared with the regulating price of production of A, would have dropped once more, from 1 pound sterling to 9/13 pound sterling. But these 9/13 would now have to be calculated upon 6½ quarters instead of 4½ quarters. And 9/13 × 6½ = 1 × 4½ = 4½ pounds sterling.
The inference from this is, in the first place, that no raising of the regulating price of production is necessary under these circumstances, in order to make possible additional investments of capital even to the point where the additional capital ceases wholly to produce any surplus profit and yields only the average profit. It follows furthermore that the sum of the surplus profit per acre remains the same here, no matter how much the surplus profit per quarter may decrease; this decrease is always balanced by a corresponding increase of the quarters produced per acre. In order that the average price of production may rise to the general price of production (in this case to 3 pounds sterling for soil B) it is necessary that additions should be made to the capital, which must have a product of a higher price of production than the regulating one of 3 pounds sterling. But we shall see that this does not suffice without further ado in order to raise the average price of production per quarter of B to the general price of production of 3 pounds sterling.
Let us assume that soil B produced.
1) 3½ quarters as before at a price of production of 6 pounds sterling; this with two investments of capital of 2½ pounds sterling each, which both form surplus profits, but of a decreasing amount.
2) 1 quarter at 3 pounds sterling; an investment of capital, in which the individual price of production shall be equal to the regulating price of production.
We should then have 5½ quarters per acre, at 13 pounds sterling, with an investment of a capital of 10 pounds sterling; this would be four times the original investment of capital, but not quite three times the product of the first investment of capital.
5½ quarters per acre at 13 pounds sterling make an average price of production of 2 4/11 pounds sterling, which would give a surplus of 7/11 pound per quarter at the regulating price of production of 3 pounds sterling . This surplus may be converted into rent. 5½ quarters sold at the regulating price of production of 3 pounds sterling make 16½ pounds sterling. After deducting the cost of production of 13 pounds sterling a surplus, or rent of 3½ pounds sterling remains, which, calculated at the present average price of production per quarter of B, that is, at 2 4/11 pounds per quarter, represent 1 5/72 quarters. The money rent would have fallen by 1 pound sterling, the grain rent by about ½ quarter, but in spite of the fact that the fourth additional investment upon B does not produce a surplus profit, but even less than the average profit, a surplus profit and a rent still continue to exist. Let us assume that not only the investment of capital as illustrated in No. 3), but also that in No. 2), produce at a cost exceeding the regulating price of production, then the total production is 3½ quarters at 6 pounds sterling plus 2 quarters at 8 pounds sterling, total 5½ quarters at 14 pounds sterling cost of production. The average price of production per quarter would be 2 6/11 pounds sterling, and it would leave a surplus of 5/11 pound sterling. The 5½ quarters, sold at 3 pounds sterling, make 16½ pounds sterling; subtract the 14 pounds sterling of cost of production, and 2½ pounds sterling remain for rent. At the present average price of production upon B this would be equivalent to 55/56 quarters. In other words, a rent would still remain, although less than before.
This shows at any rate, that upon the better soils with additional investments of capital, whose product costs more than the regulating price of production, the rent does not disappear,
at least not within the bounds of admissible practice, although it must decrease, and will do so in proportion, on the one hand, to the aliquot part formed by this unproductive capital in the total investment of capital, on the other hand in proportion to the decrease of its fertility. The average price of its fertility would still stand below the regulating price and would still leave a surplus profit that could be converted into rent.
Let us now assume that the average price per quarter of B coincides with the general price of production, in consequence of four successive investments of capital (2½, 2½, 5 and 5 pounds sterling) with a decreasing productivity.
The capitalist renter in this case sells every quarter at its individual price of production, and consequently the total number of quarters at their average price of production per quarter, which coincides with the regulating price of 3 pounds sterling. Hence he still makes a profit of 20%, or 3 pounds sterling, upon his capital of 15 pounds sterling. But the rent is gone. What has become of the surplus in this compensation of individual prices of production per quarter with the general price of production?
The surplus profit on the first 2½ pounds sterling was 3 pounds sterling; on the second 2½ pounds sterling it was1½ pounds sterling; total surplus profit on one-third of the invested capital, that is, on 5 pounds sterling, 4½ pounds sterling, or 90%.
In the case of investment No. 3) the 5 pounds sterling do not only yield no surplus profit, but its product of 1½ quarters, if sold at the general price of production, gives a minus of 1½ pounds sterling. Finally, in the case of investment
No. 4), which amounts likewise to 5 pounds sterling, its product of 1 quarter, if sold at the general price of production, gives a minus of 3 pounds sterling. Both investments of capital together give a minus of 4½ pounds sterling, equal to the surplus profit of 4½ pounds sterling, which was realized on investments Nos. 1) and 2).
The surplus profits and deficits balance one another. Therefore the rent disappears. In fact this is possible only because the elements of surplus-value, which form a surplus profit, or rent, now pass into the formation of the average profit. The capitalist renter makes this average profit of 3 pounds sterling on 15 pounds sterling, or of 20%, at the expense of the rent.
The compensation of the individual average price of production of B to the general price of production A, which regulates the market, presupposes that the difference, by which the individual price of the product of the first investment of capital stands below the regulating price, is more and more compensated and finally balanced by the difference, by which the product of the subsequent investments of capital stands above the regulating price. What appears as a surplus profit, so long as the product of the first investment of capitals sold by itself, becomes by degrees a part of their average price of production, and thereby enters into the formation of the average profit, until it is finally absorbed in this way.
If only 5 pounds sterling are invested in B, instead of 15 pounds sterling, and if the additional 2½ quarters of the last Table are produced by taking 2½ new acres of A under cultivation with an investment of 2½ pounds sterling per acre, then the invested additional capital would amount only to 6¼ pounds sterling, so that the total investment on A and B for the production of these 6 quarters would be only 11¼ pounds sterling instead of 15 pounds sterling, and the total cost of production of these including the profit of 13½ pounds sterling. The 6 quarters would still be sold at 18 pounds sterling, but the investment of capital would have decreased by 3¾ pounds sterling, and the rent upon B would be 4½ pounds sterling per acre, as before. It would be different, if
the production of additional 2½ quarters would require that inferior soil than A, for instance A—1, A—2, should be taken under cultivation; so that the price of production per quarter, for 1½ quarters on soil A—1 would be 4 pounds sterling, and for the last quarter on soil A—2 would be 6 pounds sterling. In this case these 6 pounds sterling would be the regulating price of production per quarter. The 3½ quarters of B would then be sold at 21 pounds sterling instead of 10½ pounds sterling, and this would leave a rent of 15 pounds sterling instead of 4½ pounds sterling, or in grain a rent of 2½ quarters instead of 1½ quarter. In the same way the one quarter on A would now leave a rent of 3 pounds sterling, or of ½ quarter.
Before we discuss this point any further, we will pause to make the following observation.
The average price of one quarter of B is compensated and coincides with the general price of production of 3 pounds sterling per quarter, regulated by A, as soon as that portion of the total capital, which produces the excess of 1½ quarter, is balanced by that portion of the total capital, which produces a deficit of 1½ quarter. How soon this compensation is effected, or how much capital with less than average productivity must be invested in B for that purpose, will depend, assuming the surplus productivity of the first investments of capital to be given, upon the relative underproductivity of the later invested capitals, compared with an investment of the same amount upon the worst regulating soil A, or upon the individual price of production of their product, compared with the regulating price.
We now come to the following conclusions from the foregoing:
1) So long as the additional capitals are invested in the same soil with a surplus productivity, even a decreasing one, the absolute rent in grain and money increases per acre, although it decreases relatively, in proportion to the advanced capital (in other words, the rate of surplus profit, or rent).
The limit is here formed by that additional capital, which yields only the average profit, or the price of production of whose product coincides with the general price of production. The price of production remains the same under these circumstances, unless the production upon the lesser soils becomes superfluous through an increased supply. Even with a falling price may these additional capitals still produce a surplus profit, though a smaller one, within certain limits.
2) The investment of additional capital, which produces only the average profit, whose surplus productivity is therefore zero, does not alter anything in the level of the existing surplus profit, and consequently of the rent. The individual average price per quarter increases thereby upon the superior soils; the surplus per quarter decreases, but the number of quarters, which carry this decreased surplus, increases, so that the product remains the same.
3) Additional investments of capital, whose product has an individual price of production exceeding the regulating price, whose surplus productivity is therefore not merely zero, but less than zero, that is, a minus lower than the productivity of the same investment of capital upon the regulating soil A, bring the individual average price of production of the total product of the superior soil closer to the general price of production, reduce more and more the difference between both, which forms the surplus profit, or rent. More and more of that which forms a surplus profit, or rent, passes over into the formation of the average profit. But nevertheless the total capital invested in one acre of B continues to yield a surplus profit, although a decreasing one in proportion as the capital with undernormal productivity and the degree of its underproductivity increase. The rent, with an increasing capital and increasing production, decreases in this case absolutely per acre, not merely relatively as compared to the increasing size of the invested capital, as in the second case.
The rent cannot disappear, unless the individual average price of production of the total product of the better soil B coincides with the regulating price, so that the entire surplus
profit of the first more productive investment of capital is consumed in the formation of the average profit.
The minimum limit of the fall for the rent per acre is the point at which it disappears. But this point does not assert itself, as soon as the additional investments of capital work with an underproductivity, but rather as soon as the additional investment of the underproductive capitals becomes so great that their effect paralyzes the overproductivity of the first investments of capital, so that the productivity of the total capital becomes the same as that of A, and the individual average price of the quarter of B the same as that of the quarter of A.
In this case, likewise, the regulating price of production, 3 pounds sterling per quarter, remains the same, although the rent would have disappeared. Only after this point would have been passed, would the price of production have to rise in consequence of an increase of either the degree of underproductivity of the additional capital or of the magnitude of the additional capital of the same underproductivity. For instance, if in the above Table 2½ quarters were produced instead of 1½ quarters, at 4 pounds sterling per quarter, upon the same soil, then we should have altogether 7 quarters at 22 pounds sterling cost of production; the quarter would cost 3 1/7 above the general price of production which would have to rise.
For a long time, then, additional capital with underproductivity, or even increasing underproductivity, might be invested, until the individual average price per quarter of the best soils would become equal to the general price of production, until the excess of the latter over the former, and with it the surplus profit and the rent, would entirely disappear.
And even in this case the disappearance of the rent from the better kinds of soil would only signify that the individual average price of their products would coincide with the general price of production, so that this last price would not have to rise.
In the above illustration, upon soil B, which is there the lowest of the better rent paying soils, 3½ quarters were produced
by a capital of 5 pounds sterling with a surplus productivity, and 2½ quarters by a capital of 10 pounds sterling with underproductivity, together 6 quarters, of which 5/12 are produced by the capitals with underproductivity. And only at this point does the individual average price of production of the 6 quarters rise to 3 pounds sterling and coincide with the general price of production.
Under the law of landed property, however, the last 2½ quarters could not have been produced in this way at 3 pounds sterling per quarter, with the exception of the case, in which they may be produced upon 2½ new acres of the soil A. The case, in which the additional capital produces only at the general price of production, would have been the limit. Beyond it the additional investment of capital would have to cease upon the same soil.
If the capitalist renter once pays 4½ pounds sterling of rent for the first two investments of capital, he must continue to pay them, and every investment of capital, which produces one quarter below 3 pounds sterling, would cause him a deduction from his profit. The compensation of the individual price of production, in the case of underproductivity, is thereby prevented.
Let us take this case in the previous illustration, in which the price of production of the soil A, at 3 pounds sterling per quarter, regulates the price for B.
The cost of production of the 3½ quarters in the first two investments is likewise 3 pounds sterling per quarter for the capitalist renter, since he has to pay a rent of 4½ pounds sterling, the difference between his individual price of production and the general price of production not flowing into his
pocket. In his case, then, the excess of the price of the first two investments of capital cannot serve for the compensation of the deficit incurred in the production of the third and fourth investment of capital.
The 1½ quarters in investment No. 3) cost the capitalist renter, with profit included, 6 pounds sterling; but at the regulating price of 3 pounds sterling per quarter he can sell them only for 4½ pounds sterling. In other words, he would not only lose his whole profit, but also ½ pound sterling, or 10% of his invested capital of 5 pounds sterling. The loss of profit and capital in the case of investment No. 3) would amount to 1½ pound sterling, and in the case of investment No. 4) 3 pounds sterling, together 4½ pounds sterling, just as much as the rent of the better investments amounts to, whose individual price of production cannot take part in the compensation of the individual average price of production of the total product of B, because its surplus is paid as a rent to some third person.
If the demand should require that the additional 1½ quarters must be produced by a third investment of capital, then the regulating market price would have to rise to 4 pounds sterling per quarter. In consequence of this rise in the regulating market price the rent upon B would rise for the first and second investment, and a rent would be formed upon A.
Although the differential rent is but a formal transformation of surplus profit into rent, since property in land enables the owner in this case to draw the surplus profit of the capitalist render into his own hands, we find nevertheless that the successive investment of capital upon the same land, or, what amounts to the same, the increase of the capital invested in the same land, reaches its limit far more rapidly when the rate of productivity of the capital decreases and the regulating price remains the same, so that in fact a more or less artificial barrier is erected as a consequence of the mere formal transformation of surplus profit into ground rent,—which is the result of private property in land. The rise of the general price of production, which becomes necessary when the limit is narrowed beyond the ordinary, is in this case not
merely the cause of a rise of the differential rent, but the existence of differential rent as rent is at the same time a reason for the earlier and more rapid rise of the general price of production, in order to insure by this means the supply of the needed larger product.
Furthermore we must make a note of the following facts:
By an addition of capital to soil B the regulating price could not, as above, rise to 4 pounds sterling, if soil A should supply the additional product below 4 pounds sterling by a second investment of capital, or if new and worse soil than A should come into competition, whose price of production would be higher than 3 but lower than 4 pounds sterling. We see, then, that differential rent No. I and differential rent No. II, while the first is the basis of the second, are at the same time mutual limits for one another, by which now a successive investment of capital upon the same soil, now an investment of capital side by side upon new soil, is brought about. In like manner they act as mutual boundaries in other cases, for instance, when better land is taken up.