Tuesday, 27 September 2016

Differential Rent II

Differential Rent II arises when, instead of additional capital being invested on additional land, the same land is cultivated, but increasing increments of capital are applied to it. Differential Rent I remains at the root of this form of rent, but the changes in the amounts of surplus profits obtained result from the marginal productivity of the capital employed.

With Differential Rent I, the same amount of capital is applied in each case.  Any differences in output can then be seen to be attributable to the fertility of the particular type of land, not to the capital.  But, with Differential Rent II, the starting point is one type of land, to which varying quantities of capital are applied.  In that way, any changes in output can be determined as the product of this additional capital.

In modern orthodox economics, the three factors of production - land, labour and capital - are treated separately to determine their marginal productivity.  In other words, two of these factors would be held constant, and the result of marginal increments of the third analysed to determine its marginal product.  But, Marx includes labour in capital, in this analysis, because the capital applied consists of both constant and variable capital, and with prices of production, the profit appropriated by each capital is determined by the average rate of profit.

If we take, a hectare of land, therefore, if £1,000 of capital is applied to it, and it produces 1,000 kilos of wheat, and then on the same piece of land, observe that £2,000 of capital produces 2,000 kilos of wheat, we can determine that this additional 1,000 kilos is the product of this additional £1,000 of capital.  The amount of additional output produced by this additional £1,000 of capital, is the same as that produced by the first £1,000 of capital, and so the marginal productivity of capital here would be constant.  However, if the additional £1,000 of capital resulted in output rising to 2,500 kilos, this second instalment of capital would have been responsible for an additional 1,500 kilos.  In that case, the marginal productivity of capital would be rising.  Conversely, if the output rose, but only rose to say, 1,800 kilos, the second instalment of capital would have caused this rise in output, but it would be a rise in output of only 800 kilos, compared to the initial 1,000 kilos.  In that case, the marginal productivity of capital would be falling.

Land Type
Cost of Production
£
Output
Price of Production
£
Income
£
Profit
£
Rate of Profit
%
Surplus Profit/
Rent
£
A
4,000
4,000
1.25
5,000
1,000
25.00
0
B
8,000
15,000
1.25
18,750
10,750
134.38
8,750
C
4,000
6,000
1.25
7,500
3,500
87.50
2,500

16,000
25,000
1.25
31,250
15,250
95.30
11,250

As a result of a rising marginal productivity of capital, it now becomes land type B which produces the highest surplus profit and rent. The capital employed has doubled, but the output has trebled, causing the rise in the rate of profit.

In their analysis of rent, Marx and Engels give numerous examples of these multifarious changes in the amount of rent produced by different marginal productivities of land and capital, and under conditions where the marginal productivity may be rising or falling. Production on a larger scale makes possible the use of more effective capital, for instance. The continued use of fertiliser, and working of the land, can bring about more permanent changes in fertility etc.

Another aspect of Marx's analysis of rent is the difference between the rate of rent and rent per hectare (rental), and again, this is affected by whether the rent is a consequence of Differential Rent I or II. Where cultivation is more extensive than intensive, additional areas of land are brought into cultivation to satisfy the increased demand for agricultural products. The consequence is that more rent is levied, in total, but the amount of rent per hectare may be unchanged, because more hectares are cultivated. If however, the increased output is achieved by a more intensive cultivation, by applying more capital, this may result in an absolute rise in rents, as Differential Rent II rises, but as no additional land is brought into cultivation, the rent per hectare rises. 

As with Differential Rent I the surplus profit, created by the marginal increments of capital, is the equivalent of the marginal revenue product of capital, in orthodox economics. But, similarly, as with Differential Rent I, although these marginal increments of capital result in variable increases in the physical product, that is not the same as an increase in the value created. The value created depends upon the labour-time expended, and if the employment of additional capital results in an increase in the volume of output relative to any given amount of labour-time expended, the value per unit of output will necessarily fall.

Capital III, Chapter 47 - Part 26

In the case of the small producers, Marx says, rational cultivation is impossible, because they lack the means and the knowledge to apply social productivity. Lenin, writing on agriculture, quotes Kautsky's analysis that it was only the more developed western European agricultural labourers who had shaken off the limitations of individualism, typical of the small peasant, and developed a sense of social solidarity through their trades unions, and other such bodies, who could develop agricultural co-ops, like Ralahine, that offered a progressive and superior alternative to capitalist farms.

But, rational agriculture was not possible for the large capitalist farms either, Marx says, because they were driven by the market, which led to both the soil and the agricultural labourers being degraded.

“Small landed property presupposes that the overwhelming majority of the population is rural, and that not social, but isolated labour predominates; and that, therefore, under such conditions wealth and development of reproduction, both of its material and spiritual prerequisites, are out of the question, and thereby also the prerequisites for rational cultivation. On the other hand, large landed property reduces the agricultural population to a constantly falling minimum, and confronts it with a constantly growing industrial population crowded together in large cities. It thereby creates conditions which cause an irreparable break in the coherence of social interchange prescribed by the natural laws of life. As a result, the vitality of the soil is squandered, and this prodigality is carried by commerce far beyond the borders of a particular state (Liebig). [ Liebig, Die Chemie in ihrer Anwendung auf Agricultur und Physiologie, Braunschweig, 1862. — Ed.] (p 813)

That was particularly evident at the time Marx was writing. Engels had detailed, at length, the appalling conditions of workers in the towns, but, as Marx sets out, the conditions of agricultural workers, and those of other workers detailed in Capital I, such as the miners, or the itinerant workers, moving around the country, building railways, roads, canals etc. was often worse.

“While small landed property creates a class of barbarians standing halfway outside of society, a class combining all the crudeness of primitive forms of society with the anguish and misery of civilised countries, large landed property undermines labour-power in the last region, where its prime energy seeks refuge and stores up its strength as a reserve fund for the regeneration of the vital force of nations — on the land itself. Large-scale industry and large-scale mechanised agriculture work together. If originally distinguished by the fact that the former lays waste and destroys principally labour-power, hence the natural force of human beings, whereas the latter more directly exhausts the natural vitality of the soil, they join hands in the further course of development in that the industrial system in the countryside also enervates the labourers, and industry and commerce on their part supply agriculture with the means for exhausting the soil.” (p 813)

Yet, it seems to me that this is a peculiarly one-sided, rather than dialectical view presented by Marx. It sounds more like a Malthusian or Ricardian pessimistic view, as opposed to the generally optimistic view of the potential for progress and modernisation that Marx usually presents, and which he also set out in the previous chapter. In Capital I, having lent on such a view of the destructive nature of capital, in respect of the extension of the working day beyond natural limits, Marx then described how the objective requirement of capital not to kill the goose that lays the golden egg, leads it, despite competition between capitals, to establish a normal working day, and to enshrine it in law, along with other similar provisions of the Factory Acts, so as to be able to continue to harvest surplus value from the workers in increasing masses.

Engels in his later Prefaces to his own “Condition of the Working Class in England”, sets out how the development of capitalism itself is sufficient to bring about such changes, in the self interest of the capitalists as a class.

“And in proportion as this increase took place, in the same proportion did manufacturing industry become apparently moralised. The competition of manufacturer against manufacturer by means of petty thefts upon the workpeople did no longer pay. Trade had outgrown such low means of making money; they were not worth while practising for the manufacturing millionaire, and served merely to keep alive the competition of smaller traders, thankful to pick up a penny wherever they could. Thus the truck system was suppressed, the Ten Hours’ Bill was enacted, and a number of other secondary reforms introduced — much against the spirit of Free Trade and unbridled competition, but quite as much in favour of the giant-capitalist in his competition with his less favoured brother. Moreover, the larger the concern, and with it the number of hands, the greater the loss and inconvenience caused by every conflict between master and men; and thus a new spirit came over the masters, especially the large ones, which taught them to avoid unnecessary squabbles, to acquiesce in the existence and power of Trades’ Unions, and finally even to discover in strikes — at opportune times — a powerful means to serve their own ends. The largest manufacturers, formerly the leaders of the war against the working-class, were now the foremost to preach peace and harmony. And for a very good reason. The fact is that all these concessions to justice and philanthropy were nothing else but means to accelerate the concentration of capital in the hands of the few, for whom the niggardly extra extortions of former years had lost all importance and had become actual nuisances; and to crush all the quicker and all the safer their smaller competitors, who could not make both ends meet without such perquisites. Thus the development of production on the basis of the capitalistic system has of itself sufficed — at least in the leading industries, for in the more unimportant branches this is far from being the case — to do away with all those minor grievances which aggravated the workman’s fate during its earlier stages.” 

Moreover, Engels in his Critique of the Erfurt Programme, and in various comments in Capital III, sets out the way that the replacement of private capital with socialised capital, in the form first of the joint stock companies and later the giant trusts and corporations, also leads to the ending of the “planlessness” of the early form of capitalist production. In the twentieth century, that process of introducing ever greater planning into the functioning of capitalism both at the level of the enterprise, and of the national, and even international economy, has proceeded further. In agriculture it is reflected in the introduction, for example, in Britain, after WWII, of the Milk Marketing Board, and later by the introduction of the Common Agricultural Policy in the EEC. It is seen in the various agreements to preserve fish stocks, by imposing quotas on the amount of fish of varying types that can be caught in particular waters.

Similarly, Marx has set forth the way capital was able to apply science and technology to agriculture, as much as to any other industry. The development of machinery enabled land to be ploughed, drainage to be introduced,, as well as livestock to be improved and so on. In fact, there is at least, if not more evidence of human activity in the past, causing despoliation of the land, and desertification than has capitalism, which, especially in the form of large agribusinesses has an incentive to protect the land over the longer term, as a valuable asset, just at it learned not to allow unchecked competition to lead to a destruction of the working-class.


Monday, 26 September 2016

Labour's Appearance and Reality - Part 1 of 2

Jeremy Corbyn has once again defied all of the attempts of the Tory media, and of the Labour right to prevent him becoming Labour leader. His position has, in fact, been strengthened. Reflecting the bizarre bubble in which his opponents exist, the first thing they did, after his victory, was to set out a series of demands on him, which he “must” concede to them!

The most prominent of those demands has been that Jeremy must introduce election of the Shadow Cabinet by the PLP. They present this demand, as though it is them offering an olive branch to Corbyn, that if he allows such election, they may be so gracious as to take up the positions in the Shadow Cabinet that they only months ago resiled from, in their failed attempt at a coup to remove Corbyn as Leader. But, of course, what they want everyone to believe appears to be the reason for this proposal is not the reality.

The PLP previously, under Ed Miliband, voted to end the process of electing the Shadow Cabinet. So, why do they now want to introduce the process, and why would such elections make any difference to them participating as Shadow Ministers? The reality is, of course, that their demand that Jeremy allow them to dictate who will be in his Shadow Cabinet has nothing to do with democracy, or with them offering up an olive branch. Having failed to retain, for themselves, the decision of who should be on the ballot paper for the position of Leader, and having then failed to be able to put forward any candidate that could beat Jeremy, they have fallen back to another undemocratic position.

They want to have the power to elect the Shadow Cabinet only in order to isolate Jeremy, to remove all of his supporters from the prominent positions, and thereby to dictate party policy. in Parliament, and to have a justification for dominating the airwaves, even more than the Tory media allow them currently. Where previously they admitted trying to kidnap him when he stood outside his office, so as to bully him into resigning, now they want to hold him hostage within the Shadow Cabinet in the hope of achieving the same effect.  A look at the strategy of that Tory media over recent weeks reveals what is really going on. On issue after issue, that media has called forth former Shadow Ministers to comment on matters arising in Parliament, rather than the current Shadow Minister. Its also clear why many of Jeremy's parliamentary opponents want to secure for themselves positions as chairs of select committees, because that too gives them a redoubt from which to attack him, as Keith Vaz did over anti-Semitism, as well as to justify their frequent appearance in front of the cameras.

However, its quite right that the Shadow Cabinet, as well as the Cabinet when Labour is in office, should be elected, but it should be elected, like the Leader and Deputy Leader, by the whole party, not just by a couple of hundred members who happen to be MP's. The Leader and Deputy Leader of the party, are the party's choice for who should fulfil the roles of Prime Minister and Deputy Prime Minister, it makes perfect sense, therefore, that each year, the party should also vote for who it believes should hold the other Shadow Cabinet positions, in just the same way that each year, the members of the NEC are elected.

The PLP respond to the idea that the party should elect the Shadow Cabinet by arguing that they represent millions of voters, whereas party members amount to only a few hundred thousand. But, again the superficial appearance here conflicts sharply with the reality. For the last three hundred years, British parliamentary democracy has been a party based democracy. In other words, rather than individuals putting themselves up for election, and winning support on the basis of their personal talents, they put themselves up for election, primarily, as a representative of a political party, of the general set of ideas, which that party promotes. It is the members of the party, which determine its ideology, its program and so on, and which then select individuals to represent it in elections.

The reality is that the MP's remain nothing more than individuals, and individual members of the party. Were it not for the party and its members, the individual MP would never have been elected. In systems of proportional representation, based on the party list system, that is even clearer, because it is the party which then directly determines which of its candidates from the list will actually sit in parliament. The Labour right are not relying on democratic ideas for their arguments, but a relapse into 17th century feudalism.

But, of course, even that is a charade. The Labour right, if they truly believed in this argument could easily justify it. All they had to do was to recruit a tiny fraction of those millions of supporters they claim to have in the wider electorate. They say they represent 10 million voters. To have won the leadership election – after they had disenfranchised 130,000 party members from voting – they needed an additional 100,000 votes. That represents just 1% of that 10 million people they claim supports them.

Yet, despite the fact that they have the massed ranks of the Tory media standing behind them, despite the fact that they have secretive, closed, conspiratorial organisations such as Labour First, Progress, Saving Labour and so on, as well as various millionaires, and billionaires throwing their weight behind trying to recruit people to support the forces of the right, they were not able to win the support of any of these additional voters. In fact, they went backwards. Jeremy's majority increased, and of the new members brought into the party, he won 85% of the vote!

And here lies another conflict between appearance and reality. The Labour right tell us that only they have the leadership skills, the policies and the strategic ability to beat the Tories and win the next election. Well, if they do not have any of those things sufficient to be able to win a majority within the party, why on Earth should we believe their assertion that they would have better results in a wider election? The fact, is that in terms of policies, they have nothing clear or distinctive from what the Tories are already offering, what they are offering was rejected by voters in 2010 and 2015. Even what they are suggesting through some of their mouthpieces, of some kind of lash up with the Liberals, is a non-starter, because those same policies put forward by the Liberals were decisively rejected by voters in 2015.  If they truly believed their own spin, they would save themselves the trouble of arguing with party members, and simply go off and rely on their personal talents to win an election for their parliamentary seat, or they would do what at least the SDP had the bottle to do, which is to set up their own party, and put their claims to the test.  They won't because they know what happened to the SDP, and subsequently to the Liberals.

Back in the late 70's and early 80's, for about three or four years, we used to turn up to party meetings thinking we had enough support to defeat the old right, only to find that they had pulled a few more people out of the woodwork, who we had never seen before, and often never saw again until the next AGM or selection meeting. These people who we had never seen before, would come along and hurl abuse at us, describing us as all kinds of devil's spawn. Today's right do not even have the organisational ability and backbone of the old right of that time. They are lazy and flabby, having come to rely on spin, and their access to the Tory media. They huddle together proclaiming their commitment to staying and fighting, but they are far more likely to rely on others to do any fighting of any kind, verbal or metaphorical, on their behalf. They have all sorts of professional body guards in that respect.  Even compared with their 1980's equivalents they are weak-kneed, and lacking in any kind of moral fibre.

Their own strategic and organisation skills were shown by their abortive coup attempt, followed by the laughable and equally abortive leadership campaign of Angela Eagle. At party conference, having been even more decisively defeated than they were last year, they immediately again began spinning and abusing the membership such as the comment by Phil Collins, who tweeted that the number of spoiled votes had been 61.8%, and the others on the right who tweeted images of their party cards being ripped up. And of those that were left couldn't even organise a piss-up in a pub. They booked a room in a pub for their fringe meeting that was not even big enough for the few dozen of their supporters who turned up to hear the whingeing of a handful of has been Blair-right MP's, sobbing into their beer mug over losing the potential future sinecures they had counted upon.

Capital III, Chapter 47 - Part 25

Marx is right, however, that the price of land, and with it rent, acts as a limitation of production. But, the same is true of interest, as a price of loanable money-capital. Neither interest nor rent are value adding, but they do form a part of the cost of production, and thereby reduce surplus value. They reduce the amount of value/social labour-time that can be allocated to increasing productive capacity, because they represent a diversion of that value away from capital to revenue, i.e. they finance the unproductive consumption – including speculation - of the rentier, be they a landowner or owner of loanable money-capital.

However, the question for a post-capitalist society would still be whether these prices fulfilled, at least in the transitional period, a useful function in ensuring a rational allocation of resources. We have seen repeatedly that where interest rates are low, this leads to malinvestment of capital, as well as speculation.

The latter may be avoided or reduced in a transitional economy, but there is no reason to believe the former would be. Similarly, if land were free, the same question arises of determining which of all the contending alternative uses for any piece of land, provide the greatest benefit.

In a fully planned economy, that question still needs to be addressed, because its use for one function precludes its use for all others, and some means of comparing costs with benefits, value against use value is still required.

It may still, in the transitional period, where commodity production continues, undertaken by numerous worker-owned co-operative enterprises, be required to retain such prices, but for all rent and interest to be paid into a central fund, initially in the hands of a co-operative federal holding company, and later the hands of the workers' semi-state. In that way, these prices can continue to play a role in preventing misallocation of capital, but the value itself can be accumulated and used for productive investment.

Sunday, 25 September 2016

Differential Rent I

Differential Rent I arises, because the land in cultivation has different levels of fertility. This applies also to things such as mining, where different mines produce more or less output for any given amount of employed capital and labour.
In orthodox economics terms, this equates to the marginal productivity of land. Indeed, the marginalist analysis that Marx undertakes here, building on the work of Ricardo, who himself took his theory from Anderson, essentially forms the basis of the development of marginalist analysis by the neo-classical economists.  Its unfortunate that Marx did not have the mathematical tools that the later marginalist school developed, because, if he had, it would have avoided some of the weakness in the conclusions he develops, out of his examples, in terms of resultant market prices.

The difference between Marx and the marginalists, in this respect, is as follows. The marginalists identify an amount of additional product that arises from adding an additional unit of some factor of production. This is called the marginal physical product. They then multiply this marginal physical product by the price of the commodity to arrive at a marginal revenue product, which they claim is thereby the amount of value which this additional unit of input has added to the end product. The most efficient point is reached when the price of the factor input is equal to this marginal revenue product.

Marx agrees that a factor such as land can be more or less productive. Land A might be less productive/fertile than land B, which might be less productive than land C, and so on. But, this productivity is only in terms of use values. In other words, a given amount of labour employed on land C, will produce a greater quantity of corn than the same amount of labour applied to land B, which in turn will be greater than the quantity of corn produced on land A. However, suppose that 10 hours of labour is applied to each type of land. If we ignore any constant capital, the amount of value produced, in each case, will be 10 hours.

However, this 10 hours of value will be embodied in a different quantity of use values in each case. Let 10 hours of value be equal to £100. Suppose, that land A produces 1,000 kilos of corn, B 1,500 kilos, and C 2,000 kilos. The consequence is that the individual value of a kilo of corn produced on A is then £0.10, on B it is £0.07, and on C it is £0.05. The point is that the value of corn, for Marx, is determined by the labour-time required for its production. More fertile land, means that labour can produce any given quantity of wheat in less time, and so the value of that wheat is thereby reduced compared with wheat produced on less fertile land. The same would apply to a machine that enhances the productivity of labour. In fact, rather than such a machine, or a more fertile type of land, contributing additional value, as the marginalists suggest, they reduce value, because they reduce the amount of the value creating substance - labour - required to produce any given quantity of use values.

The marginalist error arises, in this relation, because they have inherited the error of Adam Smith, the “absurd notion”, as Marx describes it, that the value of a commodity can be reduced to the factor inputs – land, labour, and capital – and that, therefore, the value of a commodity is equal to the revenues received by these factors, in the shape of rent, wages and profits. Like Smith, therefore, they end up with a cost of production theory of value. 

The basis of Differential Rent I can be seen in the following example. The average rate of profit is determined in industry. An average rate of profit of 25% is assumed.

Land Type
Cost of Production
£
Output
Price of Production
£
Income
£
Profit
£
Rate of Profit
%
Surplus Profit/
Rent
£
A
4,000
4,000
1.25
5,000
1,000
25.00
0
B
4,000
5,000
1.25
6,250
2,250
56.25
1,250
C
4,000
6,000
1.25
7,500
3,500
87.50
2,500

12,000
15,000
1.25
18,750
6,750
56.25
3,750

Unless capitals invested in land A can make the average rate of profit of 25%, they will not undertake production. That requires a market price of £1.25 per unit. At that price, however, capital invested on land type B, makes a surplus profit of £1,250, and on land type C a surplus profit of £2,500. These surplus profits are absorbed as Differential Rent I, by the landlords who own land type B and C.

Ricardo believed that it must be the case that capitals use the most fertile lands first. It was this belief that underlay his and Malthus' belief that the cost of producing food to feed a growing working population would continually rise, as less and less fertile land had to be brought into cultivation. It was the basis of Ricardo's faulty theory about the tendency for the rate of profit to fall, as wages had to rise to cover this higher cost of food.

Marx demonstrates, at length, that this view is false. There are numerous reasons why it is not the most fertile land, which is first brought into cultivation. The most fertile land may be distant from population centres, or means of transport; land may be fundamentally very fertile, but currently unused, because it requires large amounts of capital to first provide drainage etc. The development of technology may make possible the cultivation of land that was not previously cultivable. For example, the development of powerful steam engines was able to drive ploughs that were able to turn over much deeper, more fertile layers of soil.

Marx and Engels provide numerous examples of situations where it is first the least fertile soil to be developed, and only then the more fertile soil; then examples of where it is the most fertile cultivated first, moving to the least fertile; and then examples where a combined process may take place with first the more fertile soil cultivated, followed by a less fertile soil, followed by a more fertile soil, and so on.

In economic terms, the differential rent arises here because, the higher fertility of one type of land over another enables a surplus profit to be created, for capital employed on the more fertile land. But, it is the existence of landed property that enables this surplus profit to then take the form of the differential rent, which is pocketed by the landowner. If all land were of the same quality, whether that quality was good, bad or indifferent, differential rent could not exist. It does not arise as a result of the absolute fertility of the land, but only as a result of its relative fertility. Similarly, if there was an abundance of the most fertile soil, so that capital could always find some to cultivate, without the need to bring in to cultivation less fertile soil, differential rent could not exist.

This is an essential difference between agriculture and industry that gives rise to the existence of rent. In industry, surplus profits also exist, but they are competed away as capital from less profitable spheres enters those spheres where the rate of profit is higher. Within a particular sphere, an individual firm, might produce at a lower individual value than the market value, and thereby also make surplus profits, for example, as a result of introducing a new more productive machine, but again, other firms can then also introduce the same machine, and so reduce the labour-time they require for production, thereby reducing the individual value of their own output, so that again any surplus profit is competed away. But, in agriculture, capital can only obtain the benefit of more fertile land, if it first pays the differential rent to the landowner. Consequently, capital is prevented from freely entering agricultural production, and thereby increasing supply, reducing agricultural prices, and so competing away the surplus profit.

Capital III, Chapter 47 - Part 24

Marx's theory of rent, I think, is back to front. It determines the price of land as capitalised rent, whereas it should derive the price of land, like the price of loanable money-capital, as a function of its demand and supply, and having derived the price of land, on that basis, it should then see rent as the equivalent of interest on it.

If the rate of interest rises too high, it absorbs all surplus value, and thereby makes capitalist production impossible. But, similarly, if the price of land, or rent, rises too high, it also absorbs all surplus value, and makes capitalist production impossible.  In fact, we may be seeing that today in Britain, with the astronomical prices for building land that makes the potential for profitable construction of houses very difficult.

“The price of land, this element foreign to production in itself, may therefore rise here to such a point that it makes production impossible (Dombasle). 

The fact that the price of land plays such a role, that purchase and sale, the circulation of land as a commodity, develops to this degree, is practically a result of the development of the capitalist mode of production in so far as a commodity is here the general form of all products and all instruments of production.” (p 811)

Marx goes on, however, to argue that this situation of high land prices, together with high rates of interest, is only possible where capitalist production has not been fully developed. It is similar to Lenin's remark that Russia suffered not only from capitalism, but also from not enough capitalism.

“On the other hand, this development takes place only where the capitalist mode of production has a limited development and does not unfold all of its peculiarities, because this rests precisely upon the fact that agriculture is no longer, or not yet, subject to the capitalist mode of production, but rather to one handed down from extinct forms of society. The disadvantages of the capitalist mode of production, with its dependence of the producer upon the money-price of his product, coincide here therefore with the disadvantages occasioned by the imperfect development of the capitalist mode of production. The peasant turns merchant and industrialist without the conditions enabling him to produce his products as commodities.” (p 811-2)

This may be true, but it is also true that high land prices can exist alongside high interest rates, under more developed capitalist production too. If the rate of profit is high, the demand for land, as with the demand for loanable money-capital, is likely to be high and certainly rising too. Whether the price of land rises, and by how much, will depend on the potential supply and the extent of the demand, whilst the extent to which interest rates rise, will be determined by the extent to which the demand for money-capital can be met, or even exceeded by the supply.

The demand for land, like the demand for loanable money-capital is determined by the potential to use it productively so as to expand capital value, and that is a function of the general rate of profit. The supply of land, however, like the supply of loanable money-capital, is a function of its capacity to generate income. If interest rates are high, the owners of loanable money-capital will be prepared to lend more of it, putting downward pressure on rates. If the price of land is high, the owners of land will be prepared to supply more of it, either for sale, or for rent, again putting downward pressure on those prices.  Of course, as the situation of the last thirty years has shown this may not be the case where speculation drives a concern to seek speculative capital gains rather than yield.  In that case, land owners may hoard land precisely in the expectation that its future price will be much higher.

Saturday, 24 September 2016

Capital III, Chapter 47 - Part 23

Under capitalist production, the price of land is capitalised rent, and so stands in an inverse relation to the rate of interest. But, this is not necessarily the case in the condition of pre-capitalist agriculture, where the land is farmed in small parcels owned by independent farmers. Under capitalist production, the farmer obtains credit on the same basis as any other capitalist, but that is not the case for the small peasant producer, who may have to resort to usurers etc. Capitalist production itself generates conditions where a large mass of loanable money-capital is available in a liquid market, as it is continually amassed from realised surplus value, and accumulated in the money reserves previously discussed. It creates a sizeable class of rich capitalists, who have retired from activity, and live off the interest from their accumulated money-capital. These conditions do not exist in pre-capitalist production, and so the interest to be paid, where money is to be borrowed, can be high.

At the same time, because the number of these small producers is high, and they need to have land, almost at any price, because they need it for their subsistence, this demand, against limited supply raises its price. So, land prices may be high, at the same time that interest rates are high.

“The relatively low interest, which the peasant derives here from the outlay of capital for the purchase of land (Mounier), corresponds here, on the other side, to the high usurious interest rate which he himself has to pay to his mortgage creditors. The Irish system bears out the same thing, only in another form.” (p 811)

Moreover, the price per hectare for these small parcels of land may be higher than for large estates, because there are a large number of small farmers exerting a demand for such land, but far fewer large farmers exerting a demand for large estates. The same thing applies today, in relation to the demand for social housing, compared to the demand for expensive properties.

This seems to be a situation where Marx is saying that the price of land is equal to the capitalised rent, except where it isn't! The price of land here is rather a function of the demand and supply for the particular land, just as the rate of interest is determined by the demand and supply of loanable money-capital, which is then a function of the use value of that money-capital, i.e. its capacity to self-expand.

This seems to me to be equally true in relation to land as it is to loanable money-capital. When agricultural profits are high, the demand for agricultural land will rise, and its price will rise accordingly. That land which is more fertile, or has other advantages, such as location, will be more in demand than land that does not have those advantages, and so its price will be higher. Rather than the rent then determining the price of the land, it will be the price of the land, which will determine the level of rent, just as the demand and supply for loanable money-capital determines the rate of interest.

When the demand for land is high, its price will rise, and rents will rise with it, and vice versa. When the price of land is high, and interest rates rise, the price of land will fall, because the owners of land will be more inclined to throw it on to the market, so as to realise its price, and then to invest the proceeds as loanable money-capital, at these higher rates of interest.

Similarly, the demand for land will fall, because potential buyers, who need to borrow, will see their cost of doing so rise, and the potential profit from utilising the land productively will fall.

As with loanable money-capital, because land has no value, it has no objectively determinable equilibrium market price. As with loanable money-capital, its market price can only move within certain upper and lower bounds. If the price of land rises too high, it eliminates the possibility of making agricultural profit. But, the price of land cannot fall to zero, because its owners will not sell it at that price.

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