Differential Rent

C. Differential Rent

Marx refers in Poverty of Philosophy to Proudhon’s representation of Ricardian rent doctrine as a “tumult of words” (“fracas de mots”); and he gives his own understanding of that doctrine (MECW 6: 198f). Agricultural and manufacturing cost conditions are sharply distinguished. In agriculture the highest-cost units at both margins of cultivation govern cost price, whereas in industry it is least-cost that dictates cost price. Agricultural rent emerges as a differential surplus under pressure of demand for raw produce on scarce land supposing price equalization via competition (199). The emphasis on the endogeneity of the agricultural mar- gin under pressure of demand – which confirms that the demand-supply and cost determinants of equilibrium price are mutually compatible – is all the more sig- nificant because to this day Ricardo is criticized for failing to realize that where the margin falls depends on demand (on which see Hollander 1998): “In agricul- tural industry . . . it is the price of the product obtained by the greatest amount of labour which regulates the price of all products of the same kind. . . . The needs of the population having rendered necessary this increase of labour, the product of the land whose exploitation is the more costly has as certain a sale as has that of a piece of land whose exploitation is cheaper. As competition levels the market price, the product of the better soil will be paid for as dearly as that of the inferior” (MECW 6: 199–200). “If one could always have at one’s disposal plots of land of the same degree of fertility” or – here Marx alludes to the intensive margin – “if the subsequent outlays of capital produced as much as the first, then the price of agricultural products would be determined by the cost price of commodities produced by the best instruments of production, as we have seen with the price of manufactured products. But from this moment rent would have disappeared also” (200).

The role of demand is particularly insisted upon: “So long as necessity forces the purchase of all the agricultural products brought into the market, the market price is determined by the cost of the most expensive product. Thus it is this equalisation of price, resulting from competition and not from the different fertilities of the lands,

C. Differential Rent

205 that secures for the owner of the better soil a rent . . . ” (202). 12 (This formulation

has the merit of avoiding the common error of attributing Ricardian rent to the “different fertilities of the lands” as such.) This same perspective is also reflected in an insistence that rent “is a product of society and not of the soil” (205), the Ricardian doctrine implying the “industrialization” of agriculture and a degree of competition sufficient to assure uniform profit rates; thus: “the farmer should be no more than an industrial capitalist claiming for the use of his capital on inferior land [on the land] a profit equal to that which he would draw from his capital if it were applied in any kind of manufacture [for example, in the cotton industry]; that agricultural exploitation should be subjected to the regime of large-scale industry; and finally, that the landowner himself should aim at nothing beyond the money

return” (200). 13 Ireland − where rent is the entire excess over wage costs, rather than the excess over wages plus profits – could not be treated by the model (200–201). Ricardo’s sole error – Marx possibly drawing here on Jones 1831 – was to universalize and eternalize the phenomenon: “Ricardo, after postulating bourgeois production as necessary for determining rent, applies the conception of rent, nevertheless, to the landed property of all ages and all countries” (202).

Against Proudhon, who saw in improvement a source of continual increase in rent, Marx represented technical progress in Ricardian fashion as “so many tem- porary obstacles” to the secular rise of rent by allowing output expansion with- out the necessity of recourse to the higher cost extensive or intensive margins: “Thanks to these improvements, the farmer . . . has no need . . . to resort to infe- rior soils, and instalments of capital applied successively to the same soil remain equally productive” (206). Also against Proudhon, who represented rent as “the interest on a capital which never perishes, namely − land,” Marx maintained that “[t]he proceeds yielded by land as capital are interest and industrial profit, not rent. There are lands which yield such interest and profit but still yield no rent” (205).

Reference to various complexities that continually disturb “land valuations” (“cadastre”) help us understand why Marx objected to rent-confiscation proposals by James Mill, Cherbuliez, and Hilditch, which he represented as “a frank expression of the hatred the industrial capitalist bears towards the landed proprietor” (203),

a matter to which we shall return in Chapter 13. Thus “rent often includes interest paid to the landowner on capital incorporated in the land”; “rent could not be the invariable index of the degree of fertility of the land, since every moment the modern application of chemistry is changing the nature of the soil, and geological knowledge is just now, in our days, beginning to revolutionise all the old estimates

12 The excess of marginal over average cost is designated an “overcharge levied on the con- sumer” (MECW 6: 203). The insistence on marginal-cost pricing was designed to counter the

egalitarian implications of cost theory drawn by Proudhon (202–3). 13 The modifications inserted in square brackets were made by Marx himself sometime before

A “First Draft” of Capital 1847–1849 of relative fertility”; and “fertility is not so natural a quality as might be thought

[but] is closely bound up with the social relations of the time. A piece of land may

be very fertile for corn growing, and yet the market price may induce the cultivation to turn it into an artificial pastureland and thus render it infertile” (203–4). And in rejecting Proudhon’s position on land as “capital which never perishes,” Marx points out that “[l]and as capital is fixed capital; but fixed capital gets used up just as much as circulating capital. Improvements to the land need reproduction and upkeep. . . . There are even instances when land as capital might disappear even though the improvements remain incorporated in the land” − such as the case when “rent proper is wiped out by the competition of new and more fertile soils” or when once scarce improvements lose their value on becoming “universal owing to the development of agronomy” (205). Accordingly, the notion of the “eternity of the land” had no economic significance: “we grant readily it has this virtue as matter. Land as capital is no more eternal than any other capital.” All of this pointed away from the static conception of rent attributed to Proudhon − his notion (in Marx’s terms) of an “invariable index of the degree of the fertility of the land” (203).