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
DIFFERENTIAL rent appears every time and follows the same laws as the agricultural differential rent, wherever rent exists
at all. Wherever natural forces can be monopolized and thereby guarantee a surplus profit to the industrial capitalist using these forces, whether it be waterfalls, or rich mines, or waters teeming with fish, or a favorably located building lot, there the person who by his or her title to a portion of the globe has been privileged to own these things will capture a part of the surplus profit of the active capital by means of rent. Concerning mining lands, Adam Smith has explained that the basis of their rent, like that of all land not employed in agriculture, is regulated by the agricultural rent (Book I, Chapter, XI, 2 and 3). This form of rent is distinguished, first, by the overwhelming influence exerted by location upon differential rent (an influence which is very considerable in vineyards and in building lots of large cities); secondly, by the palpable passiveness of the owner, whose sole activity consists (especially in mines) in exploiting the progress of social development, toward which he contributes nothing and for which he risks nothing, unlike the industrial capitalist; and finally by the preponderance of the monopoly price in many cases, particularly by the most shameless exploitation of poverty (poverty is for house rent a more lucrative source than the mines of Potosi ever were for Spain
*132 and by the tremendous power wielded by private property in land when united with industrial capital in the same hand and used for the purpose of practically excluding the laborers in their struggle for wages from the earth as a place of domicile.
*133. One section of society thus exacts from another a tribute for the permission of inhabiting the earth. Private property in land implies the privilege of the landlord to exploit the body of the globe, the bowels of the earth, the air, and with them the conservation and development of life. Not only the increase of population, and with it the growing demand for shelter, but also the development of fixed capital, which is either incorporated in the soil or takes root in it and is based upon it, such as all industrial buildings, railroads, warehouses, factory buildings, docks, etc., necessarily increase the building
rent. A mistake between the house rent, to the extent that it is an interest and mortgage upon the capital invested in a house, and the rent for the mere land is not possible in this case, even with all the good will of a Carey, particularly when the landlord and the building speculator are different persons, as they are in England. Two elements should be considered here: On the one hand, the exploitation of the earth for the purpose of reproduction or extraction, on the other hand the space required as an element of all production and all human activity. Private property in land demands its tribute in both directions. The demand for building lots raises the value of the land as a building ground and foundation, and the simultaneous demand for elements of the terrestrial globe serving as building material grows with it.
That it is the ground-rent, and not the house, which forms the actual object of building speculation in rapidly growing cities, especially when building is carried on as an industry, as it is in London, we have already shown in Volume II, Chapter XII, pages 266-267, of the present work, where we quoted from the testimony of a large London building speculator, Edward Capps, given before the Select Committee on Bank Acts. The same man said on that occasion, No. 5435: I believe that a man who wants to get on in the world can hardly expect to get along by sticking to a fair trade….He must of necessity build also on speculation, and that on a large scale; for the contractor makes very little profit out of the buildings themselves, he makes his principal profits out of the rise of ground-rents. He takes up, for instance, a piece of land and pays 300 pounds sterling annually for it. If he erects the right class of houses upon it after a careful building plan, he may succeed in making 400 or 500 pounds sterling out of it, and his profit would consist much more of the increased ground-rent of 100 or 150 pounds sterling annually than of the profit from the buildings, which in many cases he does not consider at all.
And it should not be forgotten that after the lapse of the
lease, at the end of 99 years, as a rule, the land with all the buildings upon it and with the ground-rent, generally increased to twice or thrice its original amount, reverts from the building speculator or from his legal successor to the original landlord who was the last to rent it.
The mining rent, in its strict meaning, is determined in the same way as the agricultural rent.
There are some mines, the product of which barely suffices to pay for the labor and to reproduce the capital invested in it together with the ordinary profit. They yield some profit to the contractor, but no rent to the landlord. They can be worked to advantage only by the landowner, who in his capacity of a contractor makes the ordinary profit out of his invested capital. Many coal mines in Scotland are operated in this way, and cannot be operated in any other way. The landowner does not permit anybody to work them without the payment of rent, but no one can pay any rent for them. (Adam Smith, Book I, Chapter XI, 2.)
It is necessary to distinguish, whether the rent flows from a monopoly price, because a monopoly price of the product or of the soil exists independently of it, or whether the products are sold at a monopoly price, because a rent exists. When we speak of a monopoly price, we mean in a general way a price which is determined only by the eagerness of the purchasers to buy and by their solvency, independently of the price which is determined by the general price of production and by the value of the products. A vineyard producing wine of very extraordinary quality, a wine which can be produced only in a relatively small quantity, carries a monopoly price. The winegrower would realize a considerable surplus profit from this monopoly price, the excess of which over the value of the product would be wholly determined by the wealth and the fine appetite of the rich wine drinkers. This surplus profit, which flows from a monopoly price, is converted into rent and in this form falls into the hands of the landlord, thanks to his title to this piece of the globe, which is endowed with peculiar properties. Here, then, the monopoly price
creates the rent. On the other hand, the rent would create a monopoly price, if grain were sold not merely above its price of production, but also above its value, owing to the barrier erected by the private ownership of the land against the investment of capital upon uncultivated soil without the payment of rent. That it is only the title of a number of persons to the possession of the globe which enables them to appropriate a portion of the surplus labor of society to themselves, and to do so to an increasing extent with the development of production, is concealed by the fact that the capitalized rent, this capitalized tribute, appears as the price of the land, and that the land may be sold like any other article of commerce. The buyer, therefore, does not feel that his title to the rent is obtained gratis, and without the labor, the risk, and the spirit of enterprise of the capitalist, but rather that he has paid for it with an equivalent. To the buyer, as we have previously remarked, the rent appears merely as interest on the capital, with which he has bought the land and consequently his title to the rent. In the same way, the slave-holder considers a negro, whom he has bought, his property, not because slavery as such entitles him to that negro, but because he has acquired him just as he does any other commodity, by means of sale and purchase, but the title itself is only transferred, not created by sale. The title must exist, before it can be sold, and a series of sales cannot create this title by repetition any more than one single sale can. It was created in the first place by the conditions of production. As soon as these have arrived at a point, where they must shed their skin, the material source of the title, justified economically and historically and arising from the process which creates the material requirements of life, falls to the ground, and with it all transactions based upon it. From the point of view of a higher economic form of society, the private ownership of the globe on the part of some individuals will appear quite as absurd as the private ownership of one man by another. Even a whole society, a nation, or even all societies together, are not the
owners of the globe. They are
possessors, its users, and they have to hand it down to the coming generations in an improved condition, like good fathers of families.
In the following analysis of the price of land we leave out of consideration all fluctuations of competition, all land speculation, and small landed property, in which the land is the principal instrument of the producers and must, therefore, be bought by them at any price.
I. The price of land may rise, although the rent may not rise with it. This may take place,
1) by a mere fall of the rate of interest, which may cause the rent to be sold more dearly, so that the capitalized rent, the price of land rises;
2) because the interest of the capital incorporated in the land rises.
II. The price of land may rise, because the rent increases.
The rent may increase, because the price of the product of the land rises, in which case the rate of differential rent always rises, whether the rent upon the worst cultivated soil be large, small or nonexistent. But by the rate we mean the ratio of that portion of surplus-value, which is converted into rent, to the invested capital, which produces the product of the soil. This differs from the ratio of the surplus product to the total product, for the total product does not comprise the entire invested capital, namely not the fixed capital, which continues to exist by the side of the product. But it includes the fact that upon the soils carrying a differential rent an increasing portion of the product is converted into an overplus of a surplus product. Upon the worst soil the increase in the price of the product of the soil first creates a rent and consequently a price of land.
But the rent may also increase without a rise in the price of the product of the soil. This price may remain unaltered, or may even decrease.
If the price remains constant, the rent can grow only (aside from monopoly prices) because, on the one hand, the same
amount of capital remains invested in the older lands, while new lands of a better quality are cultivated, which, however, suffice only to cover the increased demand, so that the regulating market price remains unchanged. In this case the price of the old lands does not rise, but the price of the newly cultivated lands rises above that of the older lands.
Or, on the other hand, the rent rises because the mass of the capital exploiting the land increases, while the relative productivity and the market price remain the same. Although the rent remains the same in this case, compared to the invested capital, still its mass, for instance, may be doubled, because the capital itself has doubled. Since no fall in the price has occurred, the second investment of capital yields a surplus profit as well as the first, and it likewise is converted into rent after the expiration of the lease. The mass of the rent rises here, because the mass of capital producing a rent increases. The contention that different investments of capital in succession upon the same piece of land can produce a rent only to the extent that their yield is unequal, so that a differential rent arises, amounts to the contention that when two capitals of 1,000 pounds sterling each are invested upon fields of equal productivity, only one of them can produce a rent, although these fields belong to the better class of soil, which produces a differential rent. (The mass of the rental, the total rent of a certain country, grows therefore with the mass of capital invested, although the price of the individual pieces of land, or the rate of rent, or the mass of rent upon the individual pieces of land, does not necessarily increase; the mass of the rental grows in this case with the extension of cultivation over a wider area. This may even be combined with a fall of the rent upon the individual holdings.) On the other hand, this contention would lead to another, to the effect that the investment of capital upon two different pieces of land side by side follows different laws than the successive investment of capital upon the same piece of land, whereas differential rent is precisely derived from the identity of the law in both cases, that is, from the increased productivity of investments of capital either upon the same field or upon different fields. The
only modification which exists here and is overlooked is that successive investments of capital, when invested upon different pieces of land, meet the barrier of private ownership of land, which is not the case with successive investments of capital upon the same piece of land. This accounts for the opposite effects, by which these two forms of investments keep each other in check in practice. Whatever difference appears here is not due to capital. If the composition of the capital remains the same, and with it the rate of surplus-value, then the rate of profit remains unaltered, so that the mass of profits is doubled when the capital is doubled. In like manner the rate of rent remains the same under the conditions assumed by us. If a capital of 1,000 pounds sterling produces a rent of x, then a capital of 2,000 pounds sterling, under the assumed conditions, produces a rent of 2 x. But calculated with reference to the area of land, which has remained unaltered, since the doubled capital works upon the same field, according to our assumption, the level of the rent has risen together with its mass. The same acre, which brought a rent of 2 pounds sterling, now brings 4 pounds sterling.
The relation of a portion of the surplus-value, of money rent—for money is the independent expression of value—to the land is in itself absurd and irrational. For the magnitudes, which are here measured by one another, are incommensurable, a certain use-value, a piece of land of so and so many square feet on the one hand, and of so much value, especially surplus-value, on the other. This expresses in fact
nothing else but that, under the existing conditions, the ownership of so and so many square feet of land enables the landowner to catch a certain quantity of unpaid labor, which capital wallowing in square feet like a hog in potatoes has realized [The manuscript here has in brackets, but crossed out, the name “Liebig.”] But on first sight the expression is the same as though some one were to speak of the relation of a five-pound note to the diameter of the earth. However, the reconciliation of the irrational forms, in which certain economic conditions appear and assert themselves in practice, does not concern the active agents of these relations in their every day life. And as they are accustomed to moving about in them, they do not find anything strange about them. A complete contradiction has not the least mystery for them, They are as much at home among the manifestations which, separated from their internal connections and isolated by themselves, seem absurd, as a fish in the water. The same thing that Hegel says with reference to certain mathematical formulæ applies here. The thing which seems irrational to ordinary common sense is rational, and what seems rational to it is irrational.
When considered in connection with the land area itself, a rise in the mass of the rent expresses itself in the same way that a rise in the rate of the rent does, and this accounts for the embarrassment caused to some thinkers when the conditions, which would explain the one case, are absent in the other.
Finally, the price of land may also rise, even when the price of the products of the soil decreases.
In this case, the differential rent and with it the price of land of the better classes may have risen, owing to further differentiations. Or, if this should not be the case, the price of the products of the soil may have fallen through a greater productivity of labor, but in such a way that the increased productivity more than balances this. Let us assume that one quarter cost 60 shillings. Now, if the same acre, with the same capital, should produce two quarters instead of one, and the price of one quarter should fall to 40 shillings, then two
quarters would cost 80 shillings, so that the value of the product of the same capital upon the same acre would have risen by one-third, although the price per quarter would have fallen by one-third. How this is possible without selling the product above its price of production or above its value, has been shown in the analysis of differential rent. As a matter of fact it is possible only in two ways. Either some bad soil is placed outside of competition, but the price of the better soil increases with the increase of differential rent, owing to the fact that the general improvement affects the various kinds of soil differently. Or, the same price of production (and the same value, in case absolute rent should be paid) expresses itself upon the worst soil through a larger mass of products, when the productivity of labor has become greater. The product represents the same value as before, but the price of its aliquot parts has fallen, while their number has increased. This is impossible, when the same capital has been employed; for in this case the same value always expresses itself through any portion of the product. It is possible, on the other hand, when additional capital has been used for gypsum, guano, etc., in short for improvements which extend their effects over several years. The premise is that the price of the individual quarter falls, but not to the same extent that the number of quarters increases.
III. These different conditions under which rent may rise and with it the price of land in general, or of particular kinds of land, may partly exist side by side and compete, or the one may exclude the other, so that they act alternately. But it follows from the foregoing that it will not do to conclude offhand that a rise in the price of land signifies also a rise of rent, or that a rise of rent, which always carries with it a rise in the price of land, also signifies a rise in the price of the products of the land.
Instead of tracing to their source the natural causes which lead to an exhaustion of the soil, and which, by the way, were
unknown to all economists who have written anything on differential rent, owing to the condition of agricultural chemistry in their day, the shallow conception has been advanced, that any amount of capital cannot be invested in a limited space of land. For instance, the
“Westminister Review” maintained against Richard Jones, that all England could not be fed by cultivating Soho Square. If this is considered a special disadvantage of agriculture, it is precisely the opposite which is true. It is possible to invest capital successively with good results, because the soil itself serves as a means of production, which is not the case with a factory, or is true of it only to a limited extent, since there the land serves only as a basis, as a space, as a foundation for operations upon a certain area. It is true that, compared to scattered handicrafts, great industries may concentrate large productive plants in a small space. But even so, a definite space is always required at any stage of development, and the building of high structures has its practical limits. Beyond these limits any expansion of production demands also an extension of the land area. The fixed capital invested in machinery, etc., does not improve through use, but on the contrary, it wears out. New inventions may, indeed permit some improvement in this respect, but with any given development of the productive power the machine will always deteriorate. If the productive power is rapidly developed, the entire old machinery must be replaced by a better one, so that the old is lost. But the soil, if properly treated, improves all the time. The advantage of the soil is that successive investments of capital may bring gains without losing the older ones, and this implies the possibility of differences in the yields of these successive investments of capital.
The Condition of the Working Class In England, page 256, Swan Sonnenschein edition
Theories of Surplus-Value,” volume II, Part I), to have enlarged upon this point. He commits the mistake, however, to assume, in the first place, that in the case of capital the increase in profits is always expressed by an increase of capital, so that the ratio remains the same, when the mass of the profits increase. But this is an error, since the rate of profit may increase when the composition of the capital is changed, even if the exploitation of labor remains the same, just because the proportional value of the constant portion of capital, compared to its variable portion, may fall. In the second place he commits the mistake of dealing with the ratio of the money rent to a quantitatively limited piece of land, for instance to an acre, as though it had been the general assumption of classic economics in its analysis of the rise or fall of rent. This, again, is wrong. Classic economics always treats the rate of rent, so far as it considers rent in its natural form, with reference to the product, and so far as it considers rent as money rent, with reference to the advanced capital, because these are in fact its rational expressions.
Part VI, Chapter XLVII.