“That I determines the market-value [is correct] only on the assumption that the additional supply from II etc. is only the additional supply which the market can absorb at the market-value of I. If it is greater, then I is quite passive and by the room it takes up, only compels II, III, IV to react until the price has contracted sufficiently for the market to be large enough for the whole product.” (p 293)
At this market value of £1.80 per ton, I pays no rent, but makes average profit; II pays no differential rent, and only pays £9.166 absolute rent, as opposed to the £10 full absolute rent; III pays £10 absolute rent and differential rent of £17.50; whilst IV pays £10 absolute rent and differential rent of £49.583.
II does not pay the full £10 of absolute rent, because although £1.80 per ton is more than its individual price of production, it is below its individual value.
“(The actual rent is equal to the difference between market-value and cost-price.)
The absolute rent is equal to the difference between individual value and cost-price.
The differential rent is equal to the difference between market-value and individual value.
The actual or total rent is equal to the absolute rent plus the differential rent, in other words, it is equal to the excess of the market-value over the individual value plus the excess of the individual value over the cost-price or [it is] equal to the difference between market-value and cost-price.” (p 293)
Marx sets out a series of equations that summarise the relations between the various elements:-
“1. AR=IV-GP=+y
2. DR=MV-IV=x
3. TR=AR+DR=MV-IV+IV-CP= y+x=MV-CP
If MV>IV then MV-IV=+x. Hence: DR positive and TR= y+x.
And MV-CP=y+x. Or MV-y-x=CP or MV=y+x+CP. If MV
And MV-CP=y-x. Or MV+x=IV. Or MV+x-y=CP. Or MV=y-x+CP.
If MV=IV, then DR=0, x=0, because MV-IV=0.
Hence TR=AR+DR=AR+0=MV-IV+IV-CP=0+IV-CP=IV-CP=MV-CP=+y.
If MV=CP [then] TR or MV-CP=0.” (p 294)
If the market value (MV) is equal to the individual value (IV), the differential rent (DR) is zero, and the total rent (TR) is equal to the difference between the individual value and the cost-price/price of production (CP). If the market value is greater than the individual value, the differential rent is equal to the excess of market value over individual value, but the total rent equals the differential rent plus the absolute rent. In other words, the difference between the market value and the individual price of production. If the market value is less than the individual value, but more than the price of production, the differential rent is a negative amount. In other words, not only is no differential rent paid, but not all of the absolute rent is paid. The total rent is then the absolute rent minus this negative amount of differential rent. In reality, no negative differential rent is paid – in other words, landlords do not pay farmers to cultivate such soils – its only that not all of the absolute rent is paid. Marx avoided the implications of this by introducing the concept of Differential Value (DV).
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