Economic Manuscripts: Capital, Vol.3, Chapter 40

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Capital Vol. III Part VI
Transformation of Surplus-Profit into Ground-Rent

Chapter 40. Second Form of Differential Rent
(Differential Rent II)


Thus far we have considered differential rent only as the result of varying productivity of equal amounts of capital invested in equal areas of land of different fertility, so that differential rent was determined by the difference between the yield from the capital invested in the worst, rentless soil and that from the capital invested in superior soil. We had side by side capitals invested in different plots of land, so that every new investment of capital signified a more extensive cultivation of the soil, an expansion of cultivated area. In the last analysis, however, differential rent was by its nature merely the result of the different productivity of equal capitals invested in land. But can it make any difference if capitals of different productivity are invested successively in the same plot of land or side by side in different plots of land, provided the results are the same?

To begin with, there is no denying that, in so far as the formation of surplus-profit is concerned, it is immaterial whether £3 in production price per acre of A yield 1 qr, so that £3 is the price of production and the regulating market-price of 1 qr, while £3 in production price per acre of B yield 2 qrs, and thereby £3 of surplus-profit, similarly, £3 in production price per acre of C yield 3 qrs and £6 of surplus-profit, and, finally, £3 in production price per acre of D yield 4 qrs and £9 of surplus-profit; or whether the same result is achieved by applying these £12 in production price, or £10 of capital, with the same success in the same sequence upon one and the same acre. It is in both cases a capital of £10, whose value portions of £2½ each are successively invested — whether in four acres of varying fertility side by side, or successively in one and the same acre of land — and because of their varying outputs, one portion yields no surplus-profit, whereas the other portions yield surplus-profit proportionate to their difference in yield with respect to rentless investment.

The surplus-profit and the various rates of surplus-profit for the different value portions of capital are formed in the same manner in both cases. And the rent is nothing but a form of this surplus-profit, which constitutes its substance. But at any rate, in the second method, there are some difficulties concerning the transformation of surplus-profit into rent, this change of form, which includes the transfer of surplus-profit from the capitalist tenant to the landowner. This accounts for the obstinate resistance of English tenants to official agricultural statistics. And it accounts for their struggle against the landlords over the determination of actual results derived from their capital investment (Morton). For rent is fixed when land is leased, and after that the surplus-profit arising from successive investments of capital flows into the pockets of the tenant as long as the lease lasts. This is why the tenants have fought for long leases, and, on the other hand, due to the greater power of the landlords, an increase in the number of tenancies at will has taken place, i.e., leases which can be cancelled annually.

It is therefore evident from the very outset that, even if immaterial for the law of formation of surplus-profit, it makes a considerable difference for the transformation of surplus-profit into ground-rent whether equal capitals are invested side by side in equal areas of land with unequal results, or whether they are invested successively in the same land. The latter method confines this transformation, on the one hand, within narrower limits, on the other hand, within more variable limits. For this reason, the work of the tax-assessor, as Morton shows in his Resources of Estates, becomes a very important, complicated and difficult profession in countries practising intensive cultivation (and, economically speaking, we mean nothing more by intensive cultivation than the concentration of capital upon the same plot rather than its distribution among several adjoining pieces of land). If soil improvements are of a more permanent nature the artificially increased differential fertility of the soil coincides with its natural differential fertility as soon as the lease expires, and therefore the assessment of the rent corresponds to the determination of the rent on plots of different fertilities in general. On the other hand, in so far as the formation of surplus-profit is determined by the magnitude of operating capital, the amount of rent for a certain amount of operating capital is added to the average rent of the country and thus provision is made for the new tenant to command sufficient capital to continue cultivation in the same intensive manner.

In the study of differential rent II, the following points are still to be emphasised.

First, its basis and point of departure, not just historically, but also in so far as concerns its movements at any given period of time, is differential rent I, that is, the simultaneous cultivation side by side of soils of unequal fertility and location; in other words, the simultaneous application, side by side, of unequal portions of the total agricultural capital upon plots of land of unequal quality.

Historically this is self-evident. In the colonies, colonists have but little capital to invest; the principal production agents are labour and land. Every individual head of family seeks for himself and his kin an independent field of employment alongside his fellow-colonists. This must generally be the case in agriculture proper even under pre-capitalist modes of production. In the case of sheep-herding and cattle-raising, in general, as independent lines of production, exploitation of the soil is more or less common and extensive from the very outset. The capitalist mode of production has for its point of departure former modes of production in which the means of production were, in fact or legally, the property of the tiller himself, in a word, from a handicraft-like pursuit of agriculture. It is in the nature of things that the latter gives way but gradually to the concentration of means of production and their transformation into capital, as against direct producers transformed into wage-labourers. In so far as the capitalist mode of production is manifested here typically, it occurs at first particularly in sheep-herding and cattle-raising. But it is thus not manifested in a concentration of capital upon a relatively small area of land, but in production on a larger scale, economising in the expense of keeping horses, and in other production costs; but, in fact, not by investing more capital in the same land. Furthermore, in accordance with the natural laws of field husbandry, capital — used here, at the same time, in the sense of means of production already produced — becomes the decisive element in soil cultivation when cultivation has reached a certain level of development and the soil has been correspondingly exhausted. So long as the tilled area is small in comparison with the untilled, and so long as the soil strength has not been exhausted (and this is the case when cattle-raising and meat consumption prevail in the period before agriculture proper and plant nutrition have become dominant), the new developing mode of production is opposed to peasant production mainly in the extensiveness of the land being tilled for a capitalist, in other words, again in the extensive application of capital to larger areas of land. It should therefore be remembered from the outset that differential rent I is the historical basis which serves as a point of departure. On the other hand, the movement of differential rent II at any given moment occurs only within a sphere which is itself but the variegated basis of differential rent I.

Secondly, in the differential rent in form II, the differences in distribution of capital (and ability to obtain credit) among tenants are added to the differences in fertility. In manufacturing proper, each line of business rapidly develops its own minimum volume of business and a corresponding minimum of capital, below which no individual business can be conducted successfully. In the same way, each line of business develops a normal average amount of capital above this minimum, which the bulk of producers should, and do, command. A larger volume of capital can produce extra profit; a smaller volume does not so much as yield the average profit. The capitalist mode of production spreads in agriculture but slowly and unevenly, as may be observed in England, the classic land of the capitalist mode of production in agriculture. In so far as the free importation of grain does not exist, or its effect is but limited because the volume is small, producers working inferior soil, and thus under worse than average conditions of production, determine the market-price. A large portion of the total mass of capital invested in husbandry, and in general available to it, is in their hands.

It is true that the peasant, for example, expends much labour on his small plot of land. But it is labour isolated from objective social and material conditions of productivity, labour robbed and stripped of these conditions.

This circumstance enables the actual capitalist tenants to appropriate a portion of surplus-profit — a fact which would not obtain, at least so far as this point is concerned, if the capitalist mode of production were as evenly developed in agriculture as in manufacture.

Let us first consider just the formation of surplus-profit with differential rent II, without for the present bothering about the conditions under which the transformation of this surplus-profit into ground-rent may take place.

It is then evident that differential rent II is merely differently expressed differential rent I, but identical to it in substance. The variation in fertility of various soil types exerts its influence in the case of differential rent I only in so far as unequal results are attained by capitals invested in the soil, i.e., the amount of products obtained either with respect to equal magnitudes of capital, or proportionate amounts. Whether this inequality takes place for various capitals invested successively in the same land or for capitals invested in several plots of differing soil type — this can change nothing in the difference in fertility nor in its product and can therefore change nothing in the formation of differential rent for the more productively invested portions of capital. It is still the soil which, now as before, shows different fertility with the same investment of capital, save that here the same soil performs for a capital successively invested in different portions what various kinds of soil do in the case of differential rent I for different equal portions of social capital invested in them.

If the same capital of £10, which is shown in Table I to be invested in the form of independent capitals of £2½ each by various tenants in each acre of the four soil types A, B, C and D, were instead successively invested in one and the same acre D, so that the first investment yielded 4 qrs, the second 3, the third 2, and the fourth 1 qr (or in the reverse order), then the price of the quarter furnished by the least productive capital, namely = £3, would not yield any differential rent, but would determine the price of production, so long as the supply of wheat whose price of production is £3 were needed. And since our assumption is that the capitalist mode of production prevails, so that the price of £3 includes the average profit made by a capital of £2½ generally, the other three portions of £2½ each will yield surplus-profit in accordance with the difference in output, since this output is not sold at its own price of production, but at the price of production of the least productive investment of £2½; the latter investment does not yield any rent and the price of its products is determined by the general law of prices of production. The formation of surplus-profit would be the same as in Table I.

Once again it is seen here that differential rent II presupposes differential rent I. The minimum output obtained from a capital of £2½, i.e., from the worst soil, is here assumed to be 4 qr. Assumed, also, is that aside from the £2½ which yield 4 qrs and for which he pays a differential rent of 3 qrs, the tenant operating with soil type D invests in this same soil £2½ which yield only 1 qr, like the same capital upon the worst soil A. This would be an investment of capital which does not yield rent, since it returns to him only average profit. There would be no surplus-profit which could be transformed into rent. On the other hand, this decreasing yield of the second investment of capital in D would have no influence on the rate of profit. It would be the same as though £2½ had been invested anew in an additional acre of soil type A, a circumstance which would in no way affect the surplus-profit and, therefore, the differential rent of soils A, B, C and D. But for the tenant, this additional investment of £2½ in D would have been quite as profitable as, in accordance with our assumption, the investment of the original £2½ per acre of D, although the latter yields 4 qrs. Furthermore, if two other investments of £2½ each should yield an additional output of 3 qrs and 2 qrs respectively, a decrease would have taken place again compared with the output from the first investment of £2½ in D, which yielded 4 qrs, i.e., a surplus-profit of 3 qrs. But it would be merely a decrease in the amount of surplus-profit, and would not affect either the average profit or the regulating price of production. The latter would be the case only if the additional production yielding this decreasing surplus-profit made the production upon A superfluous, and threw acre A out of cultivation. In such case, the decreasing productiveness of the additional investment of capital in acre D would be accompanied by a fall in the price of production, for instance, from £3 to £1½, if acre B would become the rentless soil and regulator of the market-price.

The output from D would now be = 4 + 1 + 3 + 2 = 10 qrs whereas formerly it was = 4 qrs. But the price per quarter as regulated by B would have fallen to £1½. The difference between D and B would be = 10 - 2 = 8 qrs, at £1½ per quarter = £12, whereas the money-rent from D was previously = £9. This should be noted. Calculated per acre, the magnitude of rent would have risen by 33⅓% in spite of the decreasing rate of surplus-profit on the two additional capitals of £2½ each.

We see from this to what highly complicated combinations differential rent in general, and in form II coupled with form I, in particular, may give rise, whereas Ricardo, for instance, treats it very one-sidedly and as though it were a simple matter. As in the above case, a fall in the regulating market-price and at the same time rise in rent from fertile soils may take place so that both the absolute product and the absolute surplus-product increase. (In differential rent I, in descending order, the relative surplus-product and thus the rent per acre may increase, although the absolute surplus-product per acre remains constant or even decreases.) But at the same time, productiveness of the investments of capital made successively in the same soil decreases, although a large portion of them falls to the more fertile soils. From a certain point of view — as concerns both output and prices of production — the productivity of labour has risen. But from another point of view, it bas decreased because the rate of surplus-profit and the surplus-product per acre decrease for the various investments of capital in the same land.

Differential rent II, with decreasing productiveness of successive investments of capital, would necessarily be accompanied by a rise in price of production and an absolute decrease in productivity only if investments of capital could be made in none but the worst soil A. If an acre of A, which with an investment of capital of £2½; yielded 1 qr at a price of production of £3, should only yield a total of 1½ qrs with an additional outlay of £2½, i.e., a total investment of £5, then the price of production of this 1½ qrs = £6 or that of 1 qr = £4. Every decrease in productivity with a growing investment of capital would here mean a relative decrease in output per acre, whereas upon superior soils it would only signify a decrease in the superfluous surplus-product.

But by the nature of things, with the development of intensive cultivation, i.e., with successive investments of capital in the same soil, this will take place more advantageously, or to a greater extent on better soils. (We are not referring to permanent improvements by which a hitherto useless soil is converted into useful soil.) The decreasing productiveness of successive investments of capital must, therefore, have principally the effect indicated above. The better soil is selected because it affords the best promise that capital invested in it will be profitable, since it contains the most natural elements of fertility, which need but be utilised.

When, after the abolition of the Corn Laws, cultivation in England became still more intensive, a great deal of former wheat land was devoted to other purposes, particularly cattle pastures, while the fertile land best suited for wheat was drained and otherwise improved. The capital for wheat cultivation was thus concentrated in a more limited area.

In this case — and all possible surplus rates between the greatest surplus-product of the best soil and the output of rentless soil A coincide here with an absolute, rather than a relative, increase in surplus-product per acre — the newly formed surplus-profit (potential rent) does not represent a portion of a former average profit transformed into rent (a portion of the output in which the average profit formerly was expressed) but an additional surplus-profit, which is transformed out of this form into rent.

On the other hand, only in such case where the demand for grain increased to such an extent that the market-price rose above the price of production of A, so that the surplus-product of A, B, or any other kind of soil could be supplied only at a price higher than £3 would the decrease in yield from an additional investment of capital in any of the soil types A, B, C and D be accompanied by a rise in price of production and the regulating market-price. In so far as this lasted for a lengthy period of time without resulting in the cultivation of additional soil A (of at least the quality of A), or without a cheaper supply resulting from other circumstances, wages would rise in consequence of the increase in the price of bread, everything else being equal, and the rate of profit would fall accordingly. In this case, it would be immaterial, whether the increased demand were satisfied by bringing under cultivation soil of inferior quality than A, or by additional investments of capital, in any of the four types of soil. Differential rent would then increase together with a falling rate of profit.

This one case, in which the decreasing productiveness of subsequent additional capitals invested in already cultivated soils may lead to an increase in price of production, a fall in rate of profit, and the formation of higher differential rent — for the latter would increase under the given circumstances upon all kinds of soil just as though soil of inferior quality than A were regulating the market-price — has been labelled by Ricardo as the only case, the normal case — to which he reduces the entire formation of differential rent II.

This would also be the case if only type A soil were cultivated and successive investments of capital in it were not accompanied by a proportional increase in produce.

Here then, in the case of differential rent II, one completely loses sight of differential rent I.

Except for this case, in which the supply from the cultivated soils is either insufficient and the market-price thus continually higher than the price of production until new additional soil of inferior quality is taken under cultivation, or until the total product from the additional capital invested in various kinds of soil can be supplied only at a higher price of production than that hitherto prevailing — save for this case, the proportional drop in productivity of the additional capitals leaves the regulating price of production and the rate of profit unchanged. For the rest, three additional cases are possible:

a) If the additional capital invested in any one of the types of soil A, B, C or D yields only the rate of profit determined by the price of production of A, then no surplus-profit, and therefore no potential rent, is formed, any more than there would be if additional type A soil had been cultivated.

b) If the additional capital yields a larger product, new surplus-profit (potential rent) is, of course, formed provided the regulating price remains the same. This is not necessarily the case; it is not the case, in particular, when this additional production throws soil A out of cultivation and thus out of the sequence of competing soils. In this case, the regulating price of production falls. If this were accompanied by a fall in wages, or if the cheaper product were to enter into the constant capital as one of its elements, the rate of profit would rise. If the increased productivity of the additional capital had taken place upon the best soils C and D, it would depend entirely upon the degree of increased productivity and the amount of additional new capital to what extent the formation of increased surplus-profit (and thus increased rent) would be associated with the fall in prices and the rise in the rate of profit. The latter may also rise without a fall in wages, through a cheapening of the elements of constant capital.

c) If the additional investment of capital takes place with decreasing surplus-profit, but in such manner that the yield from the additional outlay still leaves a surplus above the yield from the same capital invested in A, a new formation of surplus-profit takes place under all circumstances, unless the increased supply excludes soil A from cultivation. This may take place simultaneously upon D, C, B and A. But, on the other hand, if the worst soil A is squeezed out of cultivation, then the regulating price of production falls and it will depend upon the relation between the reduced price of 1 qr and the increased number of quarters forming surplus-profit whether the surplus-profit expressed in money, and consequently the differential rent, rises or falls. But at any rate, it is noteworthy here that with decreasing surplus-profit from successive investments of capital the price of production may fall, instead of rising, which it seemingly should do at first sight.

These additional investments of capital with decreasing surplus yields correspond entirely to the case in which, e.g., four new independent capitals of £2½ each would be invested in soils with fertility between A and B, B and C, C and D, and yielding 1½, 2⅓, 2⅔, and 3 qrs respectively. Surplus-profit (potential rent) would take shape on all these soils for all four additional capitals, although the rate of surplus-profit, compared with that for the same investment of capital on the correspondingly better soil, would have decreased. And it would be immaterial whether these four capitals were invested in D, etc., or distributed between D and A.

We now come to an essential difference between the two forms of differential rent.

Under differential rent I, with constant price of production and constant differences, the average rent per acre, or the average rate of rent on capital, may increase together with the rental. But the average is a mere abstraction. The actual amount of rent, calculated per acre or with respect to capital, remains the same here.

On the other hand, under the same conditions, the amount of rent calculated per acre may increase although the rate of rent, measured relative to invested capital, remains the same.

Let us assume that production is doubled by the investment of £5 instead of £2½ in each of the soils A, B, C and D, i.e., a total of £20 instead of £10, and that the relative fertility remains unchanged. This would be tantamount to cultivating 2 instead of 1 acre of each of these kinds of soil at the same cost. The rate of profit would remain the same; also its relation to surplus-profit or rent. But if A were now to yield 2 qrs, B — 4, C — 6, and D — 8, the price of production would nevertheless remain £3 per quarter because this increase is not due to doubled fertility with the same capital, but to the same proportional fertility with a doubled capital. The two quarters of A would now cost £6 just as 1 qr cost £3 before. The profit would have doubled on all four soils, but only because the invested capital was doubled. In the same proportion, however, the rent would also have been doubled; it would be 2 qrs for B instead of 1, 4 qrs for C instead of 2, and 6 for D instead of 3; and correspondingly, the money-rent for B, C and D would now be £6, £12, and £18 respectively. Like the yield per acre, the rent in money per acre would be doubled, and, consequently, also the price of the land whereby this money-rent is capitalised. Calculated in this manner, the amount of rent in grain and money increases, and thus the price of land, because the standard used in its computation, i.e., the acre, is an area of constant magnitude. On the other hand, calculated as rate of rent on invested capital, there is no change in the proportional amount of rent. The total rental of 36 is to the invested capital of 20 as the rental of 18 is to the invested capital of 10. The same holds true for the ratio of money-rent from each type of soil to the capital invested in it; for instance, in C, £12 rent is to £5 capital as £6 rent was formerly to £2½ capital. No new differences arise here between the invested capitals, but new surplus-profits do, merely because the additional capital is invested in one of the rent-bearing soils, or in all of them, with the same proportional yield as previously. If this double investment took place, for example, only in C, the differential rent between C, B and D, calculated with respect to capital, would remain the same: for when the amount of rent obtained from C is doubled, so is the invested capital.

This shows that the amount of rent in produce and money per acre, and therefore the price of land, may rise, while the price of production, the rate of profit, and the differences remain unchanged (and therefore the rate of surplus-profit or of rent, calculated with respect to capital, remains unchanged).

The same may take place with decreasing rates of surplus-profit, and therefore of rent, that is, with decreasing productivity of the additional outlays of capital that still yield rent. If the second investments of capital of £2⅓ had not doubled the output, but B had yielded only 3½ qrs, C — 5 qrs, and D — 7 qrs, [In the German 1894 edition this reads: 6 qrs. — Ed.] then the differential rent for the second £2⅓ of capital in B would be only ⅓ qr instead of 1, on C — 1 qr instead of 2 and on D — 2 qrs instead of 3. The proportions between rent and capital for the two successive investments would then be as follows:


First Investment  Second Investment 
B:   Rent £3,   Capital £2½  Rent £1½,  Capital £2½
C:   "     £6,  "     £2½  "     £3,  "     £2½
D:   "     £9,  "     £2½  "     £6,  "     £2½

In spite of this decreased rate of relative productivity of capital, and thus of the surplus-profit calculated on capital, the rent in grain and money would have increased on B from 1 to 1⅓ qrs (from £3 to £4½), on C — from 2 to 3 qrs (from £6 to £9), and on D — from 3 to 5 qrs (from £9 to £15). In this case, the differences for the additional capitals, compared with the capital invested in A, would have decreased, the price of production would have remained the same, but the rent per acre, and consequently the price of land per acre, would have risen. The combinations of differential rent II, which presupposes differential rent I as its basis, will now be taken up.