[OPE-L] Marx's Theory of Rent - Did he get it Wrong?

From: glevy@PRATT.EDU
Date: Fri Feb 03 2006 - 08:25:07 EST

An article by Arthur Blough which was published in January, 06 at
his blog at the <http://www.workersliberty.org> site.  To see gist of
his statement of the issue, scroll down to "The Problem". Also, note a
follow-up written the next day by the author which appears after the
original entry.  Do you agree with Blough's statement of "the problem":
did Marx get the theory of rent wrong?

In solidarity, Jerry

---------------------------- Original Message ----------------------------
Marx's Theory of Rent - Did he get it Wrong? | Workers' Liberty

Arthur Bough's blog
Marx's Theory of Rent - Did he get it Wrong?

Submitted on 5 January, 2006 - 22:43.
Marx's Theory of Rent is an important part of Capital. In it, he
diverges from the method of calculating prices he elaborates for other
commodities. Ironically, it is this divergence, first elaborated in
Ricardo’s Theory of Rent, effectively the determination of prices based
on marginal rather than average cost, which formed the basis of
neo-classical economic price theory, the theory developed by bourgeois
ideologists to counter the labour Theory of Value propounded by Marx and
the Classical economists. But was this divergence justified? Did in fact,
Marx get this bit of his theory wrong? Having read it again recently, I
think the answer is yes.

Marx's Theory of Rent is extensive, and complex. It seeks to build upon
Ricardo's Theory of Differential Rent, accepting much of the basis of
that theory but demonstrating where Ricardo went wrong due to his
incorrect view of the relationship between prices and exchange values, and
Ricardo's historically incorrect view that new land brought into
production must always be inferior to that already in use. Ricardo did not
believe that Absolute Rent was possible. Marx shows that this is because
of Ricardo's mistaken view of the relationship between exchange values
and prices. Correcting this then Absolute rent becomes possible anywhere
that land is monopolised “ i.e. in Europe where capitalist land
ownership arose after feudal land ownership had already made most land
private property. The Theory takes up a large part of Volume III of
Capital and Vol. IV (Theories of Surplus Value). During the period when
this part of his work was being written Marx had begun to suffer severe
ill-health, and had to break off writing for a considerable time, and when
he came back to it, was forced to make repeated breaks due to illness. In
fact, much of the work in its final version is the work of Engels who had
to correct a number of errors made by Marx in his calculations, and whole
chunks which Engels reformulated in order that the examples worked and
could be more readily understood.

The Exchange Value of Commodities

Before looking at the Theory of Rent let me just set out briefly Marx's
theory in relation to the exchange value of commodities and the formation
therefrom of prices. Marx begins by identifying the concept Value in
its economic connotation. Something may have value to us for what it is,
for example, an apple has value to us as something to eat. But this value
is not an economic value as such, it is value in the sense of usefulness,
or in the terms of orthodox economics, utility. Marx, along with the
classical economists, terms this use-value. As far back at least as Thomas
Aquinas, those who had pondered these things had realised that in order
for something to have an economic value it must possess this other quality
of being a use-value. Where these earlier philosophers were in advance of
today's orthodox economists was that they recognised that the degree of
this usefulness had no significance in relation to the actual economic
value of the commodity.

Marx then sets out the first form of economic value which he simply terms
value. This economic value relates to anything that is produced. It
is determined by the quantity of labour absorbed in its production. The
thing produced is not a commodity, nor the value an exchange value. The
first things produced are not produced to be sold i.e. they are not
commodities, nor, therefore, is the value an exchange value, a value of
the commodity determining how much of it will exchange for some other
commodity on the market. But it is an economic value, a value that can be
objectively and quantatively assessed in a way in which use value cannot.
The individual farmer can calculate how much labour is required to produce
a ton of potatoes or a ton of carrots, and decide, based on his
preferences for each, what is the best allocation of his labour between
production of carrots or potatoes. As Marx puts it, this is the first form
of exchange, not the exchange of products but the exchange of labour with

Only at the point where these products are brought to market to be sold do
they come into a relationship with one another, and at the same time the
labour, which produced them, comes into a similar relationship. In fact,
what is really being exchanged in the marketplace is not the commodities,
but the labour that produced them. In past societies this was clear. Where
a peasant wanted his horse shod, for example, the peasant would work in
the blacksmith's field for the same amount of time that it took the
blacksmith to shoe the horse. This is the basis of exchange-value. But of
course, each farmer has varying degrees of efficiency just as no two
blacksmiths will shoe a horse in the same time. At the point where
products are no longer exchanged on the basis of barter between two
individuals, but come to market to be sold to anonymous third parties,
where their exchange value is measured not in terms of some specific other
product, but by a commodity which acts as the general equivalent of all
commodities " money “ then each commodity must have one single market
price or exchange value. Although each individual commodity, therefore,
continues to have its own specific value determined by how much labour was
consumed in its production, this specific value becomes subsumed within
the average of all other such commodities brought to market. Consequently,
producers who are efficient and use less labour than the average in the
production of such a commodity do well out of such trades. They get back
commodities containing on average more labour than they have themselves
given up, whilst the converse is also true. This is important for the
question of rent later on.

The Formation of Prices

Ricardo argued that this exchange value was the long run equilibrium
price. At any one time prices may vary from it because of fluctuations in
demand and supply but these fluctuations would be around this
exchange-value. Marx recognised that this could not be right. The
opponents of the Labour theory of Value also knew it could not be right.
The reason is straightforward. Marx distinguishes different types of
productive capital. Firstly, there are those things, which must be bought
as raw materials to go into the final product. Alongside these are the
tools and machines to be used in changing the form of these raw materials
into that of the final product. Both of these two inputs are themselves
the products of past labour and their exchange-value can be calculated by
how much labour was used in their production. These inputs transfer their
value into that of the final product.

However, the other element of productive capital is labour-power, the
purchase from the worker of his capacity to work during a given period of
time. Labour-power differs from the other two inputs. Its value is
determined like all other commodities by the labour-time required for its
production, or in other words the amount of labour required to produce the
necessities required to keep the worker alive, and enable the worker to
produce future generations of workers. Suppose this amounted to 6 hours
per day. If the capitalist pays the worker wages equivalent to this six
hours the worker has been paid the full exchange value of his labour
power. But the worker is capable of working for more than 6 hours. If the
worker works not for 6 hours but for 12 hours then he has produced new
value for the capitalist equivalent to 12 hours whilst he has been paid
for just six. The capitalist has acquired 6 hours of new value for which
he has paid nothing. This six hours of new unpaid for value forms the
basis of the capitalist’s profit.

But this is where the problem arises for Ricardo's theory of price
formation. Not all commodities are produced with the same combination of
Constant Capital (raw materials, tools and machinery) to Variable Capital
(Labour Power). Some commodities are very capital intensive using vast
amounts of expensive machines and consuming large amounts of raw
materials, but relatively little labour, whereas others use relatively
little machinery but large amounts of labour. Why does this matter? It
matters because of the fact that only the variable capital is the source
of the profit. Suppose two capitals are of the same size say £100. The
first capital uses a lot of constant capital say £80. The second a lot of
labour power say £80 again. If we assume that the labour power in both
instances is exploited at the same rates say 100%s then the £20 of labour
power in the first instance will produce a surplus value (profit) of £20,
and the labour power in the second instance of £80. But herein lies the
problem. If the prices of both commodities were equivalent to their
exchange value then the first commodity would sell at £80 + £20 + £20 =
£120, whilst the second commodity would sell at £20 + £80 + £80 =
£180, and the first capitalist would make a profit at the rate of
£20/£100 = 20%, whilst the second capitalist would make a profit at the
rate of £80/£100 = 80%.

Now, this could not happen because, aware that a rate of profit of 80%
rather than 20% could be made producing the second commodity, capitalists
producing the first commodity would automatically move production into the
second commodity. The supply of commodity 1 would fall, and its price
would then rise because the supply would not be sufficient to meet the
demand, whilst the supply of commodity 2 would rise and its price would
fall as supply exceeded demand. As the price of commodity 1 rose profits
would rise, and as the price of commodity 2 fell profits would fall. A
process of adjustment of supply, demand, prices and profits would continue
until the rate of profit was equalised over both commodities, and demand
and supply were once again in balance. But at the end of this process the
prices of both products would not and could not be the same as their
exchange values.

For the opponents of the Labour Theory of Value this was a powerful
weapon. It was a clear argument that prices were the result of the
interaction of supply and demand based on the interaction of millions of
individual preferences, not on the objective basis of exchange value
determined by the amount of labour required for production. But for Marx,
it was the proof rather than the refutation of the validity of the theory.
Marx proposed that the solution was to view Capital not as many individual
capitals but as one aggregate capital, just as you would view the capital
employed in a single enterprise as a whole rather than the capital
employed in each of its departments. On that basis Capital as a whole
would still be divided into Constant and Variable Capital, and the
Variable Capital would produce a surplus value. If you took an economy as
a whole, therefore, the sum of prices would be the same as the sum of
exchange values, which in turn is equivalent to the sum of C+V+S.
Moreover, for the economy as a whole the rate of profit would be equal to
S/C+V, and this would be the average rate of profit towards which each
individual capital would gravitate. Taking the economy as a whole then
prices were determined by exchange values, and it was the determination of
exchange values which set the bounds within which the average profit was
set, which in turn determines the allocation of capital to each type of
production, which then determines the level of supply etc. In short,
although the price of each individual commodity differs from its exchange
value, its actual price is ultimately determined by exchange value, and
the movement of exchange values determines the movement of prices. In
effect, what happens is that the total amount of surplus value produced is
shared out in proportion to the amount of capital employed such that each
capital makes the same rate of profit. Of course, this has to be viewed in
terms of capital employed in each type of production rather than each
individual capital. So, for example, the rate of profit for capital in
shipbuilding would be equalised with that in pottery manufacture, but,
just as we saw originally that each individual value could vary from its
exchange value, depending on the efficiency of production, so a more
efficient shipbuilder will make more profit than a less efficient

How This Relates to Rent

This has been a necessary diversion from the actual discussion of rent. On
the basis of this analysis of prices Marx sets out precisely why Absolute
Rent is possible. The argument is effectively this. Capital employed in
agriculture tends to have a relatively high proportion of variable capital
to constant capital compared to the average for capital as a whole. In
order to share out profits so that the rate of profit is equalised prices
for goods produced in sectors where constant capital to variable capital
(the organic composition of capital) is high are higher than their
exchange values, and in sectors where the organic composition of capital
is low prices are lower than exchange values. In agriculture then prices
should fall below exchange values. However, agriculture is different
because of the monopoly ownership of land. This monopoly means that the
landowners can intervene in the process so that agricultural capital does
not participate in the general aggregation of capital, and averaging out
of profits. Instead, the landowner can say the individual exchange value
of agricultural products might be £100 whereas in order to make average
profit the prices of these products should fall to £80, but I will charge
an absolute rent of £20, and in that way these prices will remain at
£100 and the capitalist farmer will still only make average profit. In
this way Marx demonstrated, contrary to Ricardo, the existence of Absolute
Rent. Only if the organic composition of capital in agriculture rose to
above the average would Absolute Rent become impossible.

The other form of rent is differential rent, which Marx effectively
inherits from Ricardo. Ricardo's theory of Economic rent is taught
to all students of economics at an introductory level. It forms the basis
of the theory of marginal costs. Simply stated it is this. If three
farmers farm three different but equal sized pieces of land each of
varying degrees of fertility then the farmer on the most fertile land will
produce more than the farmer on the second most fertile, who will in turn
produce more than the farmer on the least fertile. Or put another way each
will produce the same amount at varying costs. Consequently, the farmer on
the most fertile land will make more profit than the farmer on the second
most fertile, and so on. This is no different than in the case of any
other commodity. The production of pottery became concentrated in North
Staffordshire because it had readily available raw materials and over time
a skilled workforce compared with the availability of those resources
elsewhere. Each pottery manufacturer in turn produced at varying degrees
of efficiency dependent on many individual factors, from location to
individual skill of the workmen, size of operation etc. But again
agriculture differs from other types of commodity production because of
the monopoly ownership of land. A pottery manufacturer finding himself an
inefficient producer compared to others can identify the cause, and find
ways of improving. A farmer on a piece of land, which has poor fertility,
can do nothing in the short term to change that situation.

It is at this point that Marx's theory diverges from his more general
theory of exchange value, and prices. It is at this point I question
whether Marx got it wrong. We can set aside the question of prices
diverging from exchange values here, and for now assume that prices and
exchange values are the same. As I have said, Marx argued that exchange
value was based on the average amount of labour required for the
production of a commodity. On this basis some producers would make above,
some below and some the average rate of profit. Over time those obtaining
below average rates of profit would go out of business as they became
increasingly uncompetitive, whilst the more efficient would grow larger
and consequently yet more efficient and profitable. Exchange value would
fall as the average amount of labour required for production would fall as
it was increasingly determined by these larger more efficient firms.

But in relation to agriculture Marx like Ricardo abandons this position.
Instead he argues that prices will be determined not by the food produced
on the average but by the least fertile land in use (the marginal land).
The argument for this is as follows. If demand for wheat is 1 million tons
and current supply is only .9 million tons then more land must be
cultivated to produce the extra 100,000 tons. If we follow Ricardo's
view that land is brought into cultivation according to its degree of
fertility then this requires that land that is less fertile (and therefore
higher cost) than the current land in use must be brought into use. Marx
demonstrates that this is not necessarily the case. Fertile land might not
be brought into use because it is remote from markets, for example, but a
large increase in demand might make the development of transport links
worthwhile that overcomes this problem, and then a large expanse of highly
fertile land might be brought into use. This is though irrelevant for the
present discussion. Both Ricardo and Marx argue that it is the least
fertile land in use, which determines prices because unless capital can
make average profit on this land, capital will have no reason to operate
on it. If supply is to meet the shortfall against demand then prices must
rise to a level whereby the least fertile land can be brought into
operation, and return average profit. Therefore, the cost of production of
the least fertile land plus average profit will set the market price. If
we ignore Absolute Rent in this context then the landlord will not be able
to charge a rent on this land because if he did the capitalist's profit
would fall below average. On the grade of land above this, however, a
surplus profit will be made at these prices, and this enables the landlord
to levy a differential rent – a rent charged for the capitalist having
the benefit of using a more fertile piece of land. On the grade of land
above that the landlord will be able to charge an even higher rent and so
on. When Ricardo’s Theory of Rent is taught to introductory economics
students this is used to explain why shops in large city centres, where
more profit can be earned, pay higher rents than shops in less busy

The Problem

I have no argument with Marx's theory in this respect, but what I do
question is the assumption that it is the cost of production on the least
fertile land which sets the price, and that in this agriculture is
different from the production of all other commodities where exchange
value is determined by the average not the least efficient producer. The
argument is that unless capital employed in production on the worst soil
can make average profit then it will not be employed. But is this true? In
what way does agricultural capital differ here than capital employed in
any other kind of production? If the point is why would capital engage in
production of X if it couldn't make average profit we would have to ask
why does capital already engaged in production of X at below average
continue to do so. The answer is that average profit within the sector not
at the individual enterprise level determines whether capital moves to
other sectors. Within each sector there will always be some individual
capitals operating above, below and at the average. Friction prevents some
moving out etc.

If peasant A owns land, and produces enough to survive he may farm a given
plot less intensively if prices are low, saves capital whilst meeting his
needs, or he may keep part of his land fallow, keep chickens on it etc. If
the price rises above his cost of production i.e. C+V then it becomes
immediately worthwhile selling any excess production, or farming more
intensively/extensively, moving his chickens etc. In other words the
determining market price for the produce from this land to add to supply
is not its price of production (cost of production plus average profit),
but cost of production. This is similar to what is known in the study of
Management Accounting to production making a contribution. Simply put it
amounts to this. If in a firm producing a number of commodities one
commodity analysed on its own makes a loss, the firm might still continue
production of that commodity. The reason is that the firm has fixed costs
that it has to meet whether or not it produces this commodity. Provided
the income generated by the sale of this commodity is greater than the
variable costs of producing it, then this surplus of revenue over variable
cost will make a contribution towards the firm's fixed costs, and
thereby increase its overall profitability even though the individual
commodity is produced at a loss.

If market price is determined by the least fertile land and all surplus
profits are taken as differential rent, then there seems little or no
incentive for capital to seek out the better soil compared to the worst,
as there is no benefit to capital. Moreover, it means that agricultural
capital as opposed to industrial capital ALL earns average profit. This
does not seem logically or empirically correct. The basic motive force for
the concentration of capital (that the most efficient grows, whilst the
least efficient is squeezed) is removed. All agricultural capital of the
same size would be capable of growing at the same rate, wherever employed.
This does not seem to correspond to reality.

Moreover, if equilibrium is disturbed by higher demand causing price to
rise, causing profits to rise and a relocation of capital, then supply
increases to re-establish equilibrium, but this by definition implies that
price falls back (simple supply/demand an increase in supply reduces
price). The limiting factor for this new capital is not that it as an
individual capital makes average profit at this lower price, but that it
makes sufficient profit to keep it employed i.e. some profit between 0 and
average profit. The reason for its continued employment is not the
increase in market price, but the increase in demand, which caused the
initial increase in price by disturbing the supply/demand equilibrium.

If the exchange values of agricultural products are indeed based on the
average socially necessary labour used in production as for all other
commodities then this has a number of consequences. If the prices of these
goods are determined by the least fertile land then food produced on this
land will require more labour to produce the same quantity as on better
quality land. The individual value of its product will be higher than that
of food produced on lower quality land. Because Absolute Rent arises from
the surplus of exchange value over market price then if price is
determined by production on the least fertile land it will always be
possible to extract Absolute Rent from land brought into production,
because the individual value of food produced on this land will always be
higher than the market price (cost of production plus average profit)
determined by it. But in reality this is not the case. There are many
occasions when land used in the production of food is incapable of paying
even absolute rent. In these cases the land is farmed by its owner rather
than rented out. Indeed in many cases the capital on the land not only
cannot pay rent, but does not generate average profit either. This
situation is entirely compatible with the prices of agricultural products
being based on exchange values calculated according to the same rules as
for other commodities i.e. the average socially necessary labour, and,
therefore, on land of average fertility not the least fertile soil.

If the exchange value of agricultural products is determined by average
socially necessary labour as for other commodities, and market price is
determined by it then Absolute Rent can be extracted from it, and all land
of superior quality. Capital employed on such land would make average
profit after the payment of this Absolute Rent. On all land of superior
quality a differential rent would become possible. On land of inferior
quality to the average no Absolute or Differential rent is possible in
economic terms i.e. the landlord might charge rent but it would amount to
a deduction from profit or even the variable capital of the peasant.

There are still problems with this. Firstly, if land of below average
fertility did not pay Absolute Rent then it is conceivable, though I have
not worked out the appropriate scenarios, that the rate of profit on
capital on this less fertile land could be higher than on capital employed
on land of average fertility after the payment of Absolute Rent. The
conditions under which this would occur would be where a small amount of
land (which thereby has little effect on the calculation of the average)
is less fertile than the average but by only a small amount, and where
consequently its cost of production exceeds the cost of production on the
average land by less than the amount of Absolute Rent. Secondly, although
this gets over the problem other than in the above case of all capital in
agriculture obtaining the same average rate of profit in respect of land
of average and below average fertility, it does not resolve this problem
in respect of average and above average fertility land. All capital on
land of above average fertility would see its profit reduced o the same
rate as that employed on the average land as a result of it paying
progressively higher differential rent. As I said at the beginning this
does not sit comfortably with reality because it gives no incentive for
capital to seek out this more fertile land, nor to expend capital in
raising fertility. Nor does it fit the general law of capitalist
accumulation whereby the more efficient capitals grow through their higher
profits being reinvested.

I do not have solutions to those problems, but think the answer lies with
some integration of Absolute Rent and Differential Rent whereby land of
below average quality pays rent but at a lower rate, whilst land of higher
fertility pays rent at a higher rate but not proportional to its higher
rate of profit.

I would be grateful of any views other comrades might have.
Arthur Bough's blog |

Further problems and Ideas in Relation to the Theory of Rent
Submitted by Arthur Bough on 6 January, 2006 - 14:55.
The problem of all capitals employed in agriculture receiving the same
rate of profit can be overcome if the differential rent can be identified
as arising solely from the superior fertility of a particular piece of
land. For example, if two capitals of equal size and quality farm two
different pieces of land and farm 1 produces more than farm 2 then the
difference in productivity could be identified as being the result of the
superior fertility of the land on farm 1.

But this is fraught with problems, particularly for Marxist theory.
Firstly, the higher productivity might not be due to the land, but due to
better application of the capital, more skilled workers using the capital
etc. Secondly, the capital employed on two separate farms will rarely be
identical either in size or quality, so how would it be possible to
identify what part of the productivity was due to the fertility of the
land, and what due to the capital, or skill of the labour. Thirdly, this
method of analysis leads inexorably away from Value Theory and towards
neo-classical theory. We end up trying to apportion the contribution
towards the value of the end product not on the basis of objective
measurable criteria i.e. labour time, but on the basis of the marginal
product of the various factors, and some of the problems with that
approach I have given above.

There are other problems with the Theory of Rent, which have occurred to
me over the last day or so as I have been thinking about this problem.
Firstly, Absolute rent arises according to Marx from the fact that the
organic composition of capital in agriculture is lower than for industry.
If then as science and technology progresses and agriculture becomes large
scale agri-business this situation changes the basis of Absolute Rent
disappears. It is not inconceivable that human labour could be almost
totally replaced by smart robotic technology that ploughed, sowed,
fertilised, tended, reaped, and packaged agricultural products, and some
of that is already being developed. The same is true of animal husbandry.
Moreover, Marx points out the way in which differences in fertility are
diminished over time as a result of the repeated application of capital to
the land which becomes fixed in it. For example, capital expended on
drainage provides an immediate but long lasting improvement to fertility.
The application first of manures, and then of chemical fertilisers and
other chemicals changes the very structure of the soil as does the effects
of growing different types of plants for example peas, beans and other
nitrogen fixers. If then over time the different levels of fertility on
different pieces of land are effectively eradicated then the basis for
differential rent also disappears. We would then have a situation where
neither Absolute nor Differential rent could be levied. Given the
increased productivity of agriculture that both these scenarios imply is
it realistic to assume that landlords would simply allow their land to be
used by capitalists rent free??

A further problem then arises. Marx notes the paradox that land which has
no cost of production, is not the result of human labour can have no
exchange value, yet it is bought and sold. He reconciles this problem by
defining the price of land as capitalised rent. In other words he takes
current rents and assuming a given time span, say a lifetime, calculates
what someone would have to pay in order to secure that flow of income.
However, if as outlined above the basis of rent disappeared then the basis
for calculating the value of land as capitalised rent also disappears. In
short all land then becomes worthless. At a time when this land is
bringing forth an unheard of quantity of produce this would seem a

There is perhaps a solution. Marx analyses income to another participant
that has similarities to the landlord, and to land. That is his analysis
of interest. As with land interest is the payment for the use over a
particular time period of something required for the productive process.
But this something differs from the payment for say machinery, raw
materials or labour power in that it has not been produced is not the
result of human labour, and therefore has no exchange value. Money is
slightly different to land in this respect that money itself e.g. gold has
been produced is the result of human labour and does have an exchange
value. But what is being bought here is not money itself for if it were
then it could only be worth what it is worth an ounce of gold can only be
worth an ounce of gold. What is being bought is what orthodox economists
call time-preference. In other words person A has an ounce of gold, person
B does not. Person B has a time preference for the ounce of gold, which
leads them to be prepared more than its nominal value in order to have it
now. Person A has a time preference, which leads them to be prepared to
give up possession (not ownership for they remain the owner of this ounce
of gold) of the gold now in return for return of the gold plus an
additional sum in the future. This is effectively the same as what happens
when a landlord rents land. The landlord gives up his own use of the land
for a period in order that the tenant can use the land in return for the
tenant paying a rent for the land during that time period.

But Marx could not account for interest in the same way he accounted for
rent. It is not possible to identify any variable levels of fertility of
one sum of lent money against another sum of lent money. Consequently,
Marx’s theory of interest is a theory of supply and demand. Marx says
that borrowers will bid up the rate of interest according to their need
for money, whilst lenders will force the rate of interest down as they
compete to lend out their money. Where the rate of interest ends up is
purely down to the capacity of borrowers to pay (he focuses on the ability
of capitalists to borrow money because that accounted for the majority of
money borrowed, consumer credit really only took off at the beginning of
the 2oth century) which is a function of the rate of profit, and the
quantity of accumulated money capital in the hands of money capitalists
wanting to lend it out.

I think a far more satisfactory explanation of rent can be arrived at in
like manner. On that basis rent would like interest be a function of
demand and supply for the available land. This does not undermine the
Labour Theory of Value any more than Marx’s theory of Interest does. The
payment of rent is a deduction from profits just as is the payment of
interest. The ability of the capitalist to pay this rent is like the
payment of interest dependent upon the capitalist’s rate of profit, and
on more fertile land this rate of profit will be higher. No matter what
the organic composition of capital in agriculture compared to industry,
and no matter whether different pieces of land have different levels of
fertility landlords will always be able to charge rent for the simple
reason that agricultural capitalists will always demand land to farm, the
determinant of the rent then becomes not the fertility but the level of
demand determined by the rate of profit of agricultural capital versus the
quantity of available supply. The end value of agricultural commodities
remains determined by the average labour required for their production.
The only remaining question then is whether as Marx argues the monopoly
ownership of land by landowners allows them to intervene prior to the
determination of the average rate of profit such that agricultural capital
does not participate in this process, or whether rent is a straightforward
deduction from the agricultural capitalists average profits, just as
interest is a deduction from the average profits of the industrial
capitalist who borrows from the money capitalist. In reality both the
money capitalist and the landowner act as monopolists one has a monopoly
ownership of land the other monopoly ownership of money capital.
Logically, if interest is a deduction after the calculation of average
profit, then rent should be no different. Money capital arose because
concentrating this function in the hands of a specific group led to
greater efficiency and thereby savings for the industrial capitalist
compared to holding money capital himself, the development of commercial
capital arises for the same reason. However, no such savings seem obvious
in relation to land ownership. If rent is a deduction from average profit,
then there is an incentive for the capitalist farmer to remove this cost
by becoming the landowner himself, and indeed as the size of capitalists
farms has grown that is exactly what has happened.

Arthur Bough

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