 Back to Ricardo, Chapter II On Rent : He begins by presenting the colonial theory , already known from Smith, and here it is sufficient to state briefly the logical sequence of ideas. On the first settling of a country, in which there is an abundance of rich and fertile land, a very small proportion of which is required to be cultivated for the support of the actual population, or indeed can be cultivated with the capital which the population can command, there will be no rent; for no one would pay for the use of land, when there was an abundant quantity not yet appropriated, and, therefore, (because not appropriated, which Ricardo entirely forgets later on), at the disposal of whosoever might choose to cultivate it. ([David Ricardo, On the Principles of Political Economy, and Taxation, third edition, London, 1821], p. 55.) <Here the assumption therefore is: no landed property. Although this description of the process is approximately correct for the settlings of modern peoples, it is, firstly, inapplicable to developed capitalist production; and [secondly] equally false if put forward as the historical course of events in the old Europe.> We shall examine this point more closely. The logical sequence is this: If land, rich and fertile land exists in elemental abundance in practically unlimited quantity compared to the actual population and capital and Ricardo assumes this on the first settling of a country (Smith s colonial theory) and if, furthermore, an abundant quantity of this land is not yet appropriated and therefore, because it is not yet appropriated , is at the disposal of whosoever might choose to cultivate it , in this case, naturally, nothing is paid for the use of land, [there is] no rent. If land were [available] in unlimited quantity not only relatively to capital and population, but if it were in fact an unlimited element (unlimited like air and water) then indeed its appropriation by one person could not exclude its appropriation by another. No private (also no public or state) property in land could exist. In this case if all land is of the same quality no rent could be paid for it at all. At most, [rent would be paid] to the possessor of land which possessed peculiar advantages of situation. Thus, under the circumstances assumed by Ricardo namely, that land is not appropriated and uncultivated land is therefore at the disposal of whosoever might choose to cultivate it if rent is paid, then this is only possible because land is not unlimited in quantity and uniform in quality , in other words, because different types of land exist and land of the same type is limited . We say that, on Ricardo s assumption, only a differential rent can be paid. But instead of confining it to this, he jumps at once to the conclusion that quite apart from his assumption of the non-existence of landed property absolute rent is never paid for the use of land, only differential rent. The whole point therefore is: If land confronts capital in elemental abundance, then capital operates in agriculture in the same way as in every other branch of industry. There is then no landed property, no rent. At most, where one piece of land is more fertile than another, there can be excess profits as in industry. In this case these will consolidate themselves as differential rent, because of their natural basis in the different degrees of fertility of the soil. If, on the other hand, land is 1. limited, 2. appropriated, and capital finds landed property as a precondition and this is the case where capitalist production develops: where capital does not find this precondition, as it does in the old Europe, it creates it itself, as in the United States thus land is from the outset not an elementary field of action for capital. Hence [there is absolute] rent, in addition to differential rent. But in this case also the transitions from one type of land to another be it ascending: I, II, III, IV or descending IV, III, II, I work out differently than they did under Ricardo s assumption. For the employment of capital meets with the resistance of landed property both in category I and in II, III, IV; and similarly, in the reverse process, when the transition is from IV to III etc. In the transition from IV to III etc., it is not sufficient for the price of IV to rise high enough to enable the capital to be employed in III with an average profit. The price must rise to such an extent that rent can be paid on III. If the transition is made from I to II etc., then it is self-evident that the price which paid a rent for I, must not only pay this rent for II, but a differential rent besides. By postulating the non-existence of landed property, Ricardo has not, of course, eliminated the law that arises with the existence and from the existence of landed property. Having just shown how, on his assumption, a differential rent can come into being, Ricardo continues; (which, however, by no means implies that every step in the progress of population will oblige a country to have recourse to land of worse quality), This is all right. Ricardo now passes on to [an] example. But, quite apart from other points to be noted later, this example presupposes the descending line. This, however, is mere presupposition. In order to smuggle it in, he says: But the case would [be] the same, if, relatively to the colonists, there was an abundance of poor and sterile land not yet appropriated . The non-payment of rents does not depend on the richness or fertility of the land, but on the fact that it is unlimited, unappropriated and of uniform quality, whatever might be that quality as regards the degree of its fertility. Hence Ricardo himself goes on to formulate his assumption thus : He does not say and cannot say, if it were rich and fertile , because this condition would have absolutely nothing to do with the law. If, instead of being rich and fertile, the land were poor and sterile, then each colonist would have to cultivate a greater proportion of the whole land, and thus, even where the land is unappropriated, they would, with the growth of population, more rapidly approach the point where the practical abundance of land, its actual unlimitedness in proportion to population and capital, would cease to exist. It is of course quite certain that the colonists will not pick out the least fertile land, but will choose the most fertile, i.e., the land that will produce most, with the means of cultivation at their disposal. But this is not the sole limiting factor in their choice. The first deciding factor for them is the situation, the situation near the sea, large rivers etc. The land in West America etc. may be as fertile as any; but the settlers of course established themselves in New England, Pennsylvania, North Carolina, Virginia etc., in short, on the east coast of the Atlantic. If they selected the most fertile land, then they only selected the most fertile land in this region. This did not prevent them from cultivating more fertile land in the West, at a later stage, as soon as growth of population, formation of capital, development of means of communication, building of towns, made the more fertile land in this more distant region accessible to them. They do not look for the most fertile region, but for the most favourably situated region, and within this, of course given equal conditions so far as the situation is concerned they look for the most fertile land. But this certainly does not prove that they progress from the more fertile region to the less fertile region, only that within the same region provided the situation is the same the more fertile land is naturally cultivated before the unfertile. Ricardo, however, having rightly amended abundance of rich and fertile land to read land of the same properties  unlimited in quantity  uniform in quality , comes to his example and from there jumps back into the first false assumption: He senses the weakness and spuriousness [in this] and therefore adds the new condition to the most fertile land : and the most favourably situated , which was missing at the outset. The most fertile land within the most favourable situation is how it should obviously read, and surely this absurdity cannot be carried so far [as to say] that the region of the country that happens to be the most favourably situated for the newcomers, since it enables them to keep in contact with the mother country and the old folks at home and the outside world, is the most fertile region in the whole of the land, which the colonists have not yet explored and are as yet unable to explore. The assumption of the descending line, the transition from the more fertile to the less fertile region, is thus surreptitiously brought in. All that can be said is this: In the region that is first cultivated, because it is the most favourably situated, no rent is paid until, within this region, there is a transition from the more fertile to the less fertile land. Now if, however, there is a transition to a second, more fertile region than the first, then, according to the assumption, this is worse situated. Hence it is possible that the greater fertility of the soil is more than counterbalanced by the greater disadvantage of the situation, and in this case the land of region I will continue to pay rent. But the situation is a circumstance which changes historically, according to the economic development, and must continually improve with the installation of means of communication, the building of towns, etc., and the growth of the population. Hence it is clear that by and by, the product produced in region II will be brought on to the market at a price which will lower the rent in region I again (for the same product), and that in time it will emerge as the more fertile soil in the measure in which the disadvantage of situation disappears. ||603| It is therefore clear, that where Ricardo himself states the condition for the formation of differential rent correctly and in general form: all land had[b] the same properties unlimited in quantity uniform in quality , the circumstance of the transition from more fertile to less fertile land is not included, that this [transition] is also historically incorrect for the settlement in the United States which, in common with Adam Smith, he has in mind; therefore Carey s objections, which were justified on this point, that Ricardo himself reverses the problem again, by his addendum on situation : The most fertile, and most favourably situated, land will be first cultivated , that Ricardo proves his arbitrary presupposition by an example in which that which is to be proved, is postulated, namely, the transition from the best to increasingly worse land, that, finally <it is true, already with an eye to the explanation of the tendency of the general rate of profit to fall> he presupposes this, because he could not otherwise account for differential rent, although the latter in no way depends on whether there is a transition from I to II, III, IV or from IV to III, II, I. In the example, three sorts of land are postulated, Nos. 1, 2, 3, which, with an equal capital investment, yield a net produce of 100, 90, 80 quarters of corn. No. 1 is the first to be cultivated In this case the whole net produce belongs to the cultivator and will be the profits of the stock which he advances (l.c., p. 57). That this net produce is immediately regarded as profit of stock, although no capitalist production has been postulated in this case <we are not speaking of plantations> is also unsatisfactory here. But it may be that the colonist coming from the old country , looks at it in this way himself. If the population grows only to such an extent that No. 2 has to be cultivated, then No. 1 bears a rent of 10 quarters. It is of course assumed here that No. 2 and No. 3 are unappropriated and that their quantity has remained practically unlimited in proportion to population and capital. Otherwise there could be a different turn to events. Under this assumption, therefore, No. 1 will bear a rent of 10 quarters: In fact, there would be two rates of profit in agricultural capital, that is, No. 1 supplied an excess profit of 10 quarters (which, in this case, can consolidate itself as rent). But two pages later, Ricardo himself says that not only two but many very different rates of profit on capital of the same description within the same sphere of production, hence also on agricultural capital, are not only possible but inevitable: Thus in each particular industry [there are] not only two, but many rates of profit, that is to say, deviations from the general rate of profit. At this point it is not necessary to go into the further details of the example (pp. 58-59), which is concerned with the effect of employing different amounts of capital on the same land. Only these two propositions [to be noted]: 1. Rent is always the difference between the produce obtained by the employment of two ||604| equal quantities of capital and labour (l.c., p. 59). In other words, there is only a differential rent (according to the assumption that there is no landed property). For: 2. there cannot be two rates of profit (l.c., p. 59). My earlier explanations render it unnecessary to expand here on the erroneousness of the proposition that the value of corn is regulated by the quantity of labour bestowed on its production on that quality of land which pays no rent (l.c., p. 63). I have shown that whether the last type of land pays rent, [or] pays no rent, [whether it] pays the whole of the absolute rent, [only a] part of it, or it pays besides the absolute rent a differential rent (if the line is ascending), partly depends on the direction of the line, whether it is ascending or descending, and at all events, it depends on the relative composition of agricultural capital as compared with the composition of nonagricultural capital and, if as a result of the difference in this composition absolute rent is presupposed, the above cases depend on the state of the market. But the Ricardian case in particular can only occur under two circumstances (although even then fermage can yet be paid, though no rent); either when landed property does not exist, in law or in fact, or when the best land provides an additional supply which can only find its place within the market if there is a fall in market-value. But there is more besides which is wrong or one-sided in the above passage. The comparative value which here means nothing but market-value of raw produce can rise for reasons other than the above. [Firstly] if, up to now, it was sold below its value, perhaps below its cost-price; this is always the case in a certain state of society, where the production of raw produce is as yet largely directed to the subsistence of the cultivator (also in the Middle Ages, when the product of the town secured a monopoly price); secondly, it can also happen when the raw produce in contrast to the other commodities which are sold at their cost-price is not yet sold at its value. Finally, it is correct to say that it makes no difference to the price of corn if the landlord forgoes the differential rent and the farmer pockets it. But this does not apply to absolute rent. It is wrong to say here that landed property does not enhance the price of the raw produce. On the contrary the price goes up because the intervention of landed property causes the raw produce to be sold at its value which exceeds its cost-price. Supposing, as above, that the average non-agricultural capital consists of 80c+20v and the surplus-value is 50 per cent, then the rate of profit is 10 [per cent] and the value of the produce is 110, The agricultural ||605| capital on the other hand consists of 60c+40v, the value [of the produce] is 120. The raw produce is sold at this value. If landed property did not exist legally or in practice, because of the relative abundance of land as in the colonies then it would be sold at 115. For the total profit of the first and the second capital (i.e., on the 200) equals 30, hence average profit equals 15. The non-agricultural produce would be sold at 115 instead of 110; the agricultural produce at 115 instead of 120. The relative value of the agricultural produce compared with the non-agricultural produce would thus fall by one-twelfth; the average profit for both capitals or the total capital, agricultural as well as industrial would, however, rise by 50 per cent, from 10 to 15. |605|| ||636| Of his own conception of rent, Ricardo says: (that is, never acting as a monopoly, hence also never the result of monopoly. For him the only result of monopoly could be that the rent is pocketed by the owner of the better types of land rather than by the farmer), Here surplus produce is equal to the excess over the product absorbed by the wages. Assuming that certain land never pays rent Ricardo s assertion is only correct if this land, or rather its product, regulates the market-value. If, on the other hand, its product pays no rent because the market-value is regulated by the more fertile land, then this fact proves nothing. It would, indeed, benefit the farmers if the differential rent were relinquished by landlords . The relinquishment of absolute rent, on the other hand, would reduce the price of agricultural products and increase that of industrial products to the extent that the average profit grew by this process. |636|| ||605| The rise of rent is always the effect of the increasing wealth of the country, and of the difficulty of providing food for its augmented population (l.c., pp. 65-66). The latter is wrong. The absolute amount of rent can also grow when the rate of rent remains the same and only the capital invested in agriculture is growing with the growth of population; it can grow when no rent is paid on I and only a part of the absolute rent on II, but the differential rent has risen considerably as a result of their relative fertility etc. (See the table.) There is much confusion here, resulting from the jumbling up of natural price (for that is the price under discussion here) and value, Ricardo has adopted this confusion from Smith. In the case of the latter it is relatively correct, because, and in so far as, Smith departs from his own correct explanation of value. Neither rent nor profit nor wages form a component part of the value of a commodity. On the contrary, the value of a commodity being given, the different parts into which that value may be divided, belong either to the category of accumulated labour (constant capital) or wages or profit or rent. On the other hand, when referring to the natural price or cost-price, Smith can speak of its component parts as given preconditions. But by confusing natural price with value, he carries this over to the value of the commodity. Apart from the fact that the raw material and machinery (in short the constant capital) enter into production with a fixed price, which to the capitalist in each particular sphere of production appears as determined from outside, there are two things the capitalist must do when calculating the price of his commodity: he has to add the price of the wages, and this also appears to him as given (within certain limits). The natural price of the commodity is not the market-price but the average market-price over a long period, or the central point towards which the market-price gravitates. In this context therefore the price of wages is on the whole determined by the value of labour-power. But the rate of profit the natural rate of profit is determined by the value of the aggregate of commodities created by the aggregate of capitals employed in non-agricultural industry. For it is the excess of this value over the value of the constant capital contained in the commodity plus the value of wages. The total surplus-value which the total capital creates, forms the absolute amount of profit. The ratio of this absolute amount to the whole capital advanced determines the general rate of profit. Thus this general rate of profit too, appears not only to the individual capitalist, but to the capital in each particular sphere of production to be determined externally. The capitalist must add the general profit, say of 10 per cent, ||606| to the price of the raw material, etc., contained in the product, and the natural price of wages thus as it must appear to him by way of addition of component parts, or by composition to form the natural price of a given commodity. Whether the natural price is paid, or more, or less, depends on the level of the market-price prevailing at the time. Only wages and profit enter into cost-price as distinguished from value; rent enters only in so far as it is already contained in the price of the expended raw material, machinery, etc. That is, it does not enter as rent for the capitalist, to whom, in any case, the price of raw produce, machinery, in short of the constant capital, appears as a predetermined total. Rent does not enter into cost-price as a component part. If, in special circumstances, the agricultural product is sold at its cost-price, then no rent exists. Economically landed property does not then exist for capital, that is, when the product of the type of land that sells at the cost-price, regulates the market-value of the product of its sphere. (The position in I, Table D is different.) Or (absolute) rent exists. In this case the agricultural product is sold above its cost-price. It is sold at its value, which is above its cost-price. Rent, however, enters into the market-value of the product, or, rather, forms a part of the market-value. But to the farmer rent appears as predetermined, in the same way as profit does to the industrialist. It is determined by the excess of the value of the agricultural product over its cost-price. The farmer, however, calculates just like the capitalist: First the outlay, secondly wages, thirdly the average profit, finally the rent, which likewise appears to him as fixed. This is for him the natural price of wheat, for instance. Whether he obtains it, depends, in turn, on the prevailing state of the market. If the distinction between cost-price and value is properly maintained, then rent can never enter into cost-price as a constituent part, and one can talk of constituent parts only in relation to the cost-price as distinguished from the value of the commodity. (Like excess profit, differential rent never enters into cost-price, because it is nothing but the excess of the market cost-price over individual cost-price, or the excess of the market-value over individual value.) Accordingly, Ricardo is in substance right when, in opposition to Adam Smith, he declares that rent never enters into cost-price. But again he is wrong in that he proves this, not by differentiating between cost-price and value, but by identifying the two, as Adam Smith did, for neither rent nor profit, nor wages form constituent parts of value, although value is dissolvable into wages and profits and rent, and, furthermore, the three parts are of equal importance, if all three exist. Ricardo reasons thus: Rent forms no constituent part of the natural price of agricultural produce, because the price of the product of the worst land, which is equal to the cost-price of this product, and to the value of this product, determines the market-value of agricultural produce. Thus rent forms no [constituent] part of the value because it forms no [constituent] part of the natural price and this latter is equal to value. This however is wrong. The price of the product grown on the worst land equals its cost-price, either because this product is sold below its value therefore not as Ricardo says, because it is sold at its value or because the agricultural product belongs to that type, to that class, of commodities in which, by way of exception, value and cost-price are identical. This is the case when the surplus-value which is made in a particular sphere of production on a given capital, of say 100, happens to coincide with the surplus-value which on the average falls to the same relative portion of the total capital (say 100). This then is Ricardo s confusion. As to Adam Smith: in so far as he identifies cost-price with value, he is justified, on the basis of this false assumption, in saying that rent, as well as profit and wages, form constituent parts of the natural price . On the contrary it is rather inconsistent that later in his further exposition he asserts that rent does not enter into the natural price in the same way as wages and profits. He commits this inconsistency because observation and correct analysis compel him nevertheless to recognise that there is a difference in the determination of the natural price of non-agricultural produce and the market-value of agricultural produce. But more about this when discussing Smith s theory of rent. ||607| We have seen, that with every portion of additional capital which it becomes necessary to employ on the land with a less productive return, rent would rise. (But not every portion of additional capital yields a less productive return.) That is [lower] absolute rent, not necessarily differential rent. (See Table B.) Such circumstances might be the reduction in the capital of a country followed by a reduction in the population. But also a higher development of the productive powers of agricultural labour. (Oddly enough, Ricardo forgets here: improvements as shall have the effect of improving the quality of poorer lands and converting these into richer ones, an aspect stressed by Anderson.) The following proposition of Ricardo s is entirely wrong: Quite apart from the fact that, with a fall in the price of corn, an additional demand for other raw produce, green vegetables, meat, etc., will spring up and that schnaps, etc., can be made from corn, Ricardo assumes here that the entire population consumes as much corn as it likes, This is wrong. { Our enormous increase of consumption in 1848, 49, 50, shows that we were previously underfed, and that prices were forced up by the deficiency of supply. (F. W. Newman, Lectures on Political Economy, London, 1851, p. 158.) The same Newman says: Indeed, [it is] in any case wrong to say that if he withdraws the land from the production of corn, he may not get a rent by converting it into pasture or building grounds or, as in some counties in the highlands of Scotland, into artificial woods for hunting purposes. Ricardo distinguishes two kinds of improvements in agriculture. The one type In this case, according to Ricardo, the rent must fall. and while I employed these portions, the rent would remain the same, although the produce of each should have an equal augmentation. (If it had an unequal augmentation, it would be possible for the rent to rise despite the increased fertility.) Apart from demand being able to rise without a growth in population when the price falls (Ricardo himself assumes that it has risen by 5 quarters), there is a constant going over to soils of decreasing fertility, because the population grows every year, i.e., the part of the population that consumes corn, eats bread, and this part grows more rapidly than the population [as a whole], because bread is the chief means of subsistence of the majority. It is thus not necessary to assume that the demand does not grow with the productivity of capital, and that consequently the rent falls. And the rent can rise, if the difference in the degree of fertility has been unevenly affected by the improvement. Otherwise it is certain (Tables B and E), that the increase in fertility while demand remains constant can not only throw the worst land out of the market but can even force a part of the capital on better land (Table B) to withdraw from the production of corn. In this case the corn rent falls, if the augmentation of the produce is equal on the different types of land. Now Ricardo passes on to the second aspect of agricultural improvements. <Ricardo should also have adhered to this when dealing with the natural fertility of the soils. Whether the transition to these reduces the differential rent, leaves it stationary, or increases it, depends on whether the difference in the produce of the capital employed on these different more fertile soils, be increased, stationary, or diminished.> This is correct for differential rent, which alone exists for Ricardo. On the other hand, Ricardo does not touch upon the real question at all. For the solution of this question it does not matter whether the value of the individual quarter falls or whether the same quantity of land, the same types of land as previously, needs to be cultivated, but whether as a result of the reduction in the price of constant capital which, according to the assumption, costs less labour the quantity of immediate labour employed in agriculture is reduced, increased or unaltered. In short, whether or not the capital undergoes an organic change. Let us take our example from Table A (page 574, notebook XI) and let us substitute quarters of corn for tons. It is assumed here that the composition of the non-agricultural capital is 80c+ 20v, that of the agricultural capital 60c+ 40v, the rate of surplus-value in both cases being 50 per cent. Hence the rent on the agricultural capital, or the excess of its value over its cost-price, is 10. Thus we have the following: 30 35 In order to examine the problem in its pure form, one must assume that the magnitude of the capital employed in I, II, III is in all three classes affected equally by the reduction in the price of constant capital (100). For the uneven effect only concerns differential rent, and has nothing to do with the matter in hand. Supposing, therefore, that as a result of improvements, the same amount of capital, which previously cost 100, now only costs 90, it would thus be reduced by one-tenth, or 10 per cent. The question is then how the improvements affect the composition of agricultural capital. If the proportion of capital used as wages [to constant capital] remains the same, then if  100 consists of 60c+ 40v, 90 consists of 54c+ 36v, and in this case the value of the 60 quarters on land I is 108. But if the reduction in price were such that the same constant capital which previously cost 60, now only cost 54, but that v (or the capital laid out in wages) now only cost 32 2/5 instead of 36 (had also fallen by 1/10) , then 86 2/5 would be laid out instead of 100. The composition of this capital would be 54c+32 2/5v. And reckoned on 100, the composition would be 62 1/2c+ 37 1/2v. Under these circumstances, the value of the 60 quarters on I would be equal to 102 3/5. Finally, let us assume that although the value of the constant capital decreases, the capital laid out in wages remains the same absolutely, it therefore grows in proportion to the constant capital; so that the capital of 90 which has been laid out consists of 50c+40v, the composition of [a capital of] 100 would be 55 5/9c+44 4/9v. Now let us see what happens to corn and money rent in these three cases. In case B the proportion of c to v remains the same although the value of both decreases. In C the ||610| value of c decreases, but proportionately, that of v decreases even more. In D, only the value of c decreases, not that of v. First let us reproduce the original table contained on the previous page [and then let us compare it with the new tables B, C and D, representing the cases just described illustrating changes in value of the organic component parts of the agricultural capital][d] ||611| From the accompanying table it is evident that : Originally in A the ratio is 60c+ 40v; the capital invested m each class is 100. The rent in money amounts to 70, in corn to 35 quarters. In B the constant capital becomes cheaper so that only 90 [are] invested in each class, the variable capital however becomes cheaper in the same proportion, so that the ratio remains the same. Here the money rent falls, the corn rent remains the same; [the] absolute rent is also the same. Money rent decreases because the capital invested decreases. Corn rent remains the same, because less money [produces relatively] more corn the ratio remaining the same. In C cheaper constant capital; but [the value of] v decreases even more, so that the constant capital becomes relatively dearer. Absolute rent falls. Corn rent falls and money rent falls. Money rent, because capital in general has decreased significantly, and corn rent, because absolute rent has fallen while the differences (between the various categories] have remained the same, therefore all of them fall equally. In D, however, the case is completely the reverse. Only the constant capital falls; the variable capital remains the same. This was Ricardo s assumption. In this case, because of the fall in capital, the money rent falls, though the fall is quite insignificant, in absolute figures it is only  1/3, but in proportion to the capital laid out, it rises considerably. The corn rent, on the other hand, grows absolutely. Why? Because the absolute rent has risen from 10 to 12 2/9 per cent, because v has grown in proportion to c. Hence: Ricardo continues: The inequality can be increased, while capital is withdrawn and while fertility increases, or even while the less fertile land is thrown out of the market. {Landlord and capitalist. In a leader of 15th July, 1862, the Morning Star [examines] whose duty it is (voluntarily or compulsorily) to support the distressed (as a result of the cotton famine and the civil war in America) workmen in the cotton manufacture districts of Lancashire, etc. It says: The capitalist is the direct exploiter of the workers, not only the direct appropriator but the direct creator of surplus-labour. But since (for the industrial capitalist) this can only take place through and in the process of production, he is himself a functionary of this production, its director. The landlord, on the other hand, has a claim through landed property (to absolute rent) and because of the physical differences of the various types of land (differential rent)-which enables him to pocket a part of this surplus-labour or surplus-value, to whose direction and creation he contributes nothing. Where there is a conflict, therefore, the capitalist regards him as a mere super-fetation, a Sybarite excrescence, a parasite on capitalist production, the louse that sits upon him.} Chapter III On the Rent of Mines [David Ricardo, On the Principles of Political Economy, and Taxation, third edition, London, 1821, p. 76]. Here again: So far as absolute rent is concerned, it is neither effect nor cause of the high value , but the effect of the excess of value over cost-price. That this excess is paid for the produce of the mine, or the land, and thus absolute rent is formed, is the effect, not of that excess, because it exists for a whole class of trades, where it does not enter into the price of the produce of those particular branches of production, but is the effect of landed property. In regard to differential rent it may be said, that it is the effect of high value ; so far as by high value is understood the excess of the market-value of the produce over its real or individual value, for the relatively more fertile classes of land or mine. That Ricardo understands by the exchangeable value regulating the produce of the poorest land or mine, nothing but cost-price, by cost-price nothing but the advances plus the ordinary profit, and that he falsely identifies this cost-price with real value, will also be seen from the following passage: Here, therefore, [he says] in plain language: rent equals excess of the price (exchangeable value is the same here) of the agricultural produce over its cost-price, that is over the value of capital advanced plus the usual (average) profits of stock. Hence, if the value of the agricultural produce is higher than its cost-price, it can pay rent quite irrespectively of differences in land, the poorest land and the poorest mine can pay the same absolute rent as the richest. If its value were no higher than its cost-price, rent could only arise from the excess of the market-value over the real value of the produce derived from relatively more fertile soils, etc. What applies to gold and mines, applies to corn and land. Hence if the same types of land continued to be exploited and continued to yield the same product for the same outlay in labour ||613|, then the value of the pound of gold or the quarter of wheat would remain the same, although its quantity would increase with the demand. Thus its rent (the amount, not the rate of rent) [would] also grow without any change in the price of produce. More capital would be employed, although productivity would remain constant. This is one of the major causes of the rise in the absolute amount of rent, quite apart from any rise in the price of produce, and, therefore, without any proportional change in the rents paid by produce of different soils and mines. Chapter XXIV Doctrine of Adam Smith concerning the Rent of Land. This chapter is of great importance for the difference between Ricardo and Adam Smith. We shall postpone a fuller discussion of this (in so far as it affects Adam Smith), to when we consider ex professo Adam Smith s doctrine after that of Ricardo. Ricardo begins by quoting a passage from Adam Smith showing that he correctly determined when the price of the agricultural produce yields a rent and when it does not. But on the other hand Smith thought that some parts of the produce of land, such as food, must always yield a rent. In this context Ricardo says the following, which is significant for him: Indeed, these principles are substantially different . Where no landed property exists actual or legal no absolute rent can exist. It is absolute rent, not differential rent, which is the adequate expression of landed property. To say that the same principles regulate rent, where landed property exists and where it does not exist, means that the economic form of land-ed property is independent of whether landed property exists or not. Besides, what is the meaning of there is land of such a quality that it cannot yield a produce more than sufficiently valuable to replace the stock with the ordinary profits (l.c., pp. 389-390). If the same quantity of labour produces 4 quarters, the product is no more valuable than if it produces two, although the value of the individual quarter is in one case twice as great as in the other. Whether or not it yields a rent, is therefore in no way independent on the magnitude of this value of the produce as such. It can only yield a rent if its value is higher than its cost-price, which depends on the cost-price of all other products or, in other words, on the quota of unpaid labour which is, on an average, appropriated by a capital of 100 in each sphere of production. But whether its value is higher than its cost-price is in no way dependent on its absolute size, but on the composition of the capital employed on it, compared with the average composition of the capital employed in non-agricultural industry. Ricardo admits here that also the worst land can bear a rent. How does he explain this? To provide the additional supply which has become necessary in consequence of an additional demand, a second amount of capital is employed on the worst land ||614|. This will only yield the cost-price if the price of grain is rising. Hence the first amount would now yield a surplus that is rent over and above this cost-price. In fact therefore before the second amount is invested the first amount of capital yields a rent on the worst land, because the market-value is above the cost-price. Thus the only question is whether, for this to happen, the market-value has to be above the value of the worst product, or whether on the contrary its value is above its cost-price, and the rise in price merely enables it to be sold at its value. Furthermore: Why must the price be so high that it equals the cost-price, i.e., the capital advanced plus average profit? Because of the competition of capitals in the different branches of production and the transfer of capital from one branch to another. That is, as a result of the action of capital upon capital. But by what action could capital compel landed property to allow the value of the product to fall to the cost-price? Withdrawal of capital from agriculture cannot have this effect, unless it is accompanied by a fall of the demand for agricultural produce. It would achieve the reverse, and cause the market-price of agricultural produce to rise above its value. Transfer of new capital to land cannot have this effect either. For it is precisely the competition of capitals amongst themselves, which enables the landlord to demand from the individual capitalist that he should be satisfied with an average profit and pay over to him the overplus of the value over the price affording this profit. But, it may be asked: If landed property gives the power to sell the product above its cost-price, at its value, why does it not equally well give the power to sell the product above its value, at an arbitrary monopoly price? On a small island, where there is no foreign trade in corn, the corn, food, like every other product, could unquestionably be sold at a monopoly price, that is, at a price only limited by the state of demand, i.e., of demand backed by ability to pay, and according to the price level of the product supplied the magnitude and extent of this effective demand can vary greatly. Leaving out of account exceptions of this kind which cannot occur in European countries; even in England a large part of the fertile land is artificially withdrawn from agriculture and from the market in general, in order to raise the value of the other part landed property can only affect and paralyse the action of capitals, their competition, in so far as the competition of capitals modifies the determination of the values of the commodities. The conversion of values into cost-prices is only the consequence and result of the development of capitalist production. Originally commodities are (on the average) sold at their values. Deviation from this is in agriculture prevented by landed property. Ricardo says that when a farmer takes land on a lease of seven or fourteen years, he calculates that with a capital investment of, say, 10,000, the value of the corn (average market-value) permits him to replace his outlay plus average profit, plus the contracted rent. In so far as he takes a lease of a piece of land, therefore, his first consideration is the average market-value, which is equivalent to the value of the product; profit and rent are only parts into which this value is resolved, but they do not constitute it. The existing market-price is for the capitalist what the presupposed value of the product is for the theory and the inner relationships of production. Now to the conclusion which Ricardo draws from this. If the farmer adds another 1,000, he only considers whether, at the given market-price, it yields him the usual profit. Ricardo therefore seems to think that the cost-price is the determining factor and that profit enters into this cost-price as a regulating element, but rent does not. Firstly, profit too does not enter into it as a constituent element. For, according to the assumption, the farmer takes the market-price as his starting-point, and weighs up whether, at this given market-price, the 1,000 will yield him the usual profit. This profit is therefore not the cause, but the effect of that price. But Ricardo continues his train of thought the investment of the 1,000 itself is determined by the calculation of whether or not the price yields the profit. Thus the profit is the decisive factor for the investment of the 1,000, and for the price of production. Furthermore: If the capitalist found that the 1,000 did not yield the usual profit, he would not invest it. The production of the additional food would not take place. If it were necessary for the additional demand, then the demand would have to raise the price, i.e., the market-price, until it yielded the profit. Thus profit in contradistinction to rent enters as a constituent element, not because it creates the value of the product, but because the product ||615| itself would not be created if its price did not rise high enough to pay the usual rate of profit as well as the capital expended. In this case, however, it is not necessary for it to rise so high as to pay rent. Hence, there exists an essential difference between rent and profit, and in a certain sense, it can be said that profit is a constituent element of price, whereas rent is not. (This thought is evidently also at the back of Adam Smith s mind.) In this case, it is correct. But why? Because in this case landed property cannot confront capital as landed property, thus the very combination [of circumstances] under which rent, absolute rent, is formed, is not present according to the assumption. The additional corn produced with the second investment of 1,000, provided the market-value remains the same, in other words when an additional demand arises only on the assumption that the price remains the same, must be sold below its value at the cost-price. This additional produce of the 1,000 thus occurs under the same circumstances as when new worse land is cultivated, which does not determine the market-value, but can provide the additional supply only on the condition that it supplies it at the previously existing market-value, i.e., at a price determined independently of this new production. Under these circumstances it depends entirely on the relative fertility of the additional soil whether it yields a rent precisely because it does not determine the market-value. It is just the same with the additional 1,000 on the old land. And for this very reason, Ricardo concludes conversely, that the additional land or the additional amount of capital determines the market-value because, with a given, quite independently determined market-value, the price of its product yields not rent, but only profit, and only covers the cost-price but not the value of the product. This is a contradiction in terms. Nevertheless, the product is produced in this case, although it yields no rent! Certainly. Landed property as an independent opposing element does not exist for the farmer, i.e., the capitalist, during the period in which the lease in fact makes him the landowner of the land which he has rented. Capital moves unimpeded in this element, and capital is satisfied with the cost-price of the product. Even when the lease expires, the farmer will naturally make the amount of rent dependent on how far capital investment in the land will supply a product which can be sold at its value thus yielding a rent. Capital investment which, with the given market-value, yields no excess over the cost-price, no more enters into the calculation than would the payment of rent or contractual undertaking to pay rent on land whose relative fertility is so low that the market-price is merely equal to the cost-price [of its product]. In practice matters do not always work out in the Ricardian manner. If the farmer possesses some spare capital or acquires some during the first years of a lease of 14 years, he does not demand the usual profit, unless he has borrowed additional capital. For what is he to do with the spare capital? Conclude a new lease for additional land? Agricultural production favours to a much higher degree more intensive capital investment, than a more extensive cultivation of land with a larger capital. Moreover, if no land could be leased in the immediate vicinity of the old land, two farms would split up the farmer s work of super-intending them to a much greater extent, than six factories would split up the work of one capitalist in manufacture. Or should he invest the money with the bank, for interest, in government bonds, railway shares, etc.? Then, from the outset, he forgoes at least a half or a third of the usual profit. Hence, if he can invest it as additional capital on the old farm, even below the average rate of profit, say at 10 per cent, if his profit was 12, then, he will still be gaining 100 per cent if the rate of interest is 5 per cent. To invest the additional 1,000 in the old farm is, therefore, still a profitable speculation for him. ||616| Hence it is quite wrong for Ricardo to identify this investment of additional capital with the application of additional capital to new soils. In the first case, the product does not have to yield the usual profit, even in capitalist production. It must only yield as much above the usual rate of interest as will make worth while the trouble and risk of the farmer to prefer the industrial employment of his spare capital to its employment as money capital. But the following conclusion which Ricardo draws from this observation is, as has been shown, quite absurd. His illustration proves just the reverse: that the application to land of this last portion of capital has been regulated by a market-price which, independent of that application, existed before it took place and, therefore comprises no rent, but only profit. That profit is the only regulator for capitalist production is quite true. And it is therefore true that no absolute rent would exist if production were regulated solely by capital. It arises precisely at the point where the conditions of production enable the landowner to set up barriers against the exclusive regulation of production by capital. Secondly, Ricardo reproaches Adam Smith (p. 391, et seq.) for developing the correct principles of rent [only] with regard to coal-mines; [he] even says: Adam Smith senses that, under certain circumstances, the landlord has the power to offer effective resistance to capital, to bring landed property into play, and thus to demand absolute rent, though, under different circumstances, he does not possess this power; that in particular however the production of food establishes the law of rent, whereas in other applications of capital to land, the rent is determined by the agricultural rent. In his reply, Ricardo comes closest to the real principle of rent. He says: Here Ricardo formulates the correct principle of rent, If the worst land pays a rent, if therefore rent is paid independently of the different natural fertility of the land i.e., absolute rent then this rent must equal the excess of the value of the produce above the expenditure of capital and the ordinary profits of stock [l.c., pp. 392-93] that is to say, it must equal the excess of the value of the produce above its cost-price. Ricardo presupposes that such an excess cannot exist, because, in contradiction to his own principles, he wrongly accepts the Smithian doctrine ||617| that value equals cost-price of the produce. As for the rest, he falls again into error. Differential rent would of course be determined by the relative fertility . Absolute rent would have nothing to do with the natural fertility . Smith however would indeed be right when he asserts that the actual rent paid by the worst land may depend on the absolute fertility of the other soils and the relative fertility of the worst soil, or on the absolute fertility of the worst soil and the relative fertility of the other soils. For the actual amount of rent paid by the worst land depends not, as Ricardo thinks, on the excess of the value of its own produce over its cost-price, but on the excess of the market-value over its cost-price. But these are very different things If the market-price were determined by the product of the worst land, then the market-value would be equal to its real value, hence, the excess of its market-value over its cost-price would be equal to the excess of its own individual value, its real value, over its cost-price. But this is not the case if quite irrespective of this product the market-price is determined by the other types of land. Ricardo assumes a descending line. He assumes that the worst land is cultivated last and is only cultivated (in the case postulated), when the additional demand has necessitated an additional supply at the value of the produce derived from the worst and last cultivated soil. In this case the value of the worst land regulates the market-value. In the ascending line (even according to him) this will only occur when the additional supply of the better sorts of land only equals the additional demand at the old market-value. If the additional supply is greater, Ricardo assumes that the old land must be thrown out of cultivation, but it only follows from this that it will yield a lower rent than before (or no rent at all). The same happens in the descending line. Whether, and to what extent, the worse land yields rent, if the additional supply can only by provided at the old market-value, depends on how much this market-value stands above the cost-price of the product of the new, worse land. In both cases its rent is determined by the absolute fertility, not the relative fertility. It depends on the absolute fertility of the new land how far the market-value of the produce of better lands stands above its own real, individual value. Adam Smith makes a correct distinction here between land and mines, because with the latter he presupposes that there is never a transition to worse sorts always to better ones and that they always provide more than the necessary additional supply. The rent of the worst land is then dependent on its absolute fertility. Adam Smith is mistaken when he declares the particular set of circumstances on the market, under which the most fertile mine (or land) dominates the market, to be the rule. But provided such a case is assumed his reasoning is correct (on the whole) and Ricardo s wrong. Adam Smith presupposes that as a result of the state of demand and because of its relative superior fertility, the best mine can only force the whole of its product on to the market if it undersells its competitors, if its product is below the old market-value. This causes the price to fall for the worse mines too. The market-price falls. This in any case lowers the rent on worse mines and can even make it disappear completely. For the rent is equal to the excess of market-value over cost-price of the produce, whether that market-value be like the individual value of the produce of a certain class [of land], or mines, or not. What Smith fails to notice, is that the profit can only be diminished by this if it becomes necessary to withdraw capital and reduce the scale of production. If the market-price regulated, as it is under the given circumstances, by the produce of the best mines falls so low as to afford no excess above cost-price for the product of the worst mine, then it can be worked only by its owner. At this market-price, no capitalist will pay him a rent. His ownership of land does not, in this case, give him power over capital, but as far as he is concerned it annuls the resistance which other capitalists meet who wish to apply capital to land. Landed property does not exist for him because he himself is the landed proprietor. Hence he can use his land as a mine, or in any other sphere of production, i.e., he can employ it if the market-price, which he finds predetermined and does not determine himself if the market-price of the product yields him the average profit, that is, his cost-price. And from this Ricardo concludes that Smith contradicts himself! Because the old market-price determines how far new mines can be opened up by their owners in other words they can be worked in circumstances where landed property disappears, since at the old market-price they yield their cultivators the cost-price he concludes that this cost-price determines the market-price! But again he takes refuge in the descending line and allows the less fertile mine to be cultivated only when the market-price of the product rises above the value of the product of the better mines, whereas it is only necessary that it rises above the cost-price or even that it equals the cost-price in the case of the worse mines exploited by their proprietors themselves. Incidentally, his assumption that if by new processes the quantity (of coal) should be increased, the price would fall, and some mines would be abandoned [l.c., p. 394], depends only on the degree of the fall in price and the state of demand. If, with this fall of prices, the market can absorb the whole product, then the bad mines will still yield a rent provided the fall of market-price still leaves an excess of market-value over the cost-price of the poorer mines, and [the mines will] be worked by their owners, if the market-value only covers, or is equal to, the cost-price. In either case, however, [it is] absurd to say that the cost-price of the worst mine regulates the market-price. Although the cost-price of the worst mine determines the relation of the price of its produce to the ruling market-price, and therefore decides the question whether or not ||618| the mine can be worked. But the fact that a piece of land or a mine of a particular degree of fertility can be exploited at a given market-price, is obviously not related to or identical with the determination of the market-price by the cost-price of the produce of these mines. If an increased market-value would make an additional supply necessary or possible then the worst land would regulate the market-value, but then it would also yield absolute rent. This is the exact opposite of the case assumed by Adam Smith. Thirdly, Ricardo reproaches Smith for believing (p. 395, et. seq.) that cheapness of raw produce, for instance substitution of potatoes for corn, which would lower the wage and diminish the cost of production, would cause a larger share as well as a larger quantity to fall to the landlord, Ricardo on the other hand [maintains that] : This is positively wrong. The share of rent would fall and, therefore, its quantity would decrease relatively. The introduction of potatoes as the principal means of subsistence, would reduce the value of labour-power, shorten the necessary labour-time, increase the surplus labour-time and therefore the rate of surplus-value, hence other circumstances remaining the same the composition of the capital would be altered, the value of the variable part would diminish in comparison with that of the constant part, although the quantity of living labour employed remained the same. The rate of profit would therefore rise. In this case [there would be] a fall in absolute rent and proportionately in differential rent. (See page 610 Table C.) This factor would affect equally agricultural and non-agricultural capital. The general rate of profit would rise and the rent would consequently fall. Chapter XXVIII. On the comparative Value of Gold, Corn, and Labour, in Rich and Poor Countries. Chapter XXXII. Mr. Malthus s Opinions on Rent. [a] In the manuscript: soil . Ed. [b] In the manuscript: of instead of had . Ed. [c] In the manuscript: a .-Ed. [d] There follow the tables. Marx did not fill in some columns in tables C and D. The missing figures, as well as the heading of the last column, have been inserted by the editors. Ed. [e] In the manuscript: of . Ed.
Economic Manuscripts: Theories of Surplus-Value, Chapter 13