Competition Constrained: Land Scarcity and Firm Size

E. Competition Constrained: Land Scarcity and Firm Size

The Transformation procedure may have deflected attention unduly from the splendid accounts in Capital of the operation of “real world” competitive systems that would be at home in any “classical” text, whether Adam Smith’s, Ricardo’s, Mill’s, or Marshall’s. Thus immediately following the passage expounding the trans- formation of values into prices (MECW 37: 194; above, p. 24), Marx spells out the pre-conditions for a tendency to profit-rate uniformity in an account that can

be appreciated independently of the formal transformation. This account is in fact prefaced by a subtle transfer from a “noetical” (above, p. 25) to a historical perspective: “Capital succeeds in this equalisation,” Marx writes immediately after the above-mentioned passage, “to a greater or lesser degree, depending on the extent of capitalist development in the given nation; i.e., on the extent the condi- tions in the country in question are adapted for the capitalist mode of production” (194–5).

The account of the pre-conditions required to assure operation of a full-fledged competitive system is impressive, and includes capitalist institutional arrange- ments, a credit mechanism, and the absence of legal or other impediments to factor mobility both geographical and occupational. Thus mobility of capital “implies complete freedom of trade within the society and the removal of all monopolies with the exception of the natural ones, those, that is, which naturally arise out of the capitalist mode of production. It implies, furthermore, the development of the credit system, which concentrates the inorganic mass of the disposable social capital vis-`a-vis the individual capitalist. Finally, it implies the subordination of the various spheres of production to the control of capitalists. . . . A great density of population is another requirement” (195). Mobility of labor “implies the abolition of all laws preventing the labourers from transferring from one sphere of produc- tion to another and from one local centre of production to another; indifference of the labourer to the nature of his labour; the greatest possible reduction of labour in all spheres of production to simple labour; the elimination of all vocational prejudices among labourers; and last but not least, a subjugation of the labourer to the capitalist mode of production.”

A supplementary passage reinforces the impression that Marx’s concern is the operation of actual, real-world, systems. For he allows that “with respect to each sphere of actual production – industry, agriculture, mining, etc. – the transfer of capital from one sphere to another offers considerable difficulties, particu- larly on account of the existing fixed capital” adding, however, that “[e]xperience shows . . . that if a branch of industry, such as, say, the cotton industry, yields unusu- ally high profits at one period, it makes very little profit, or even suffers losses, at another, so that in a certain cycle of years the average profit is much the same as

29 in other branches. And capital soon learns to take this experience into account”

E. Competition Constrained: Land Scarcity and Firm Size

(206). Moreover, there is a qualification to the main argument regarding output variations in the transition from values to prices-of-production, a qualification which applies in fact quite generally to the understanding of “competition”: “As soon as capitalist production reaches a certain level of development, the equalisa- tion of the different rates of profit in individual spheres to general rate of profit no longer proceeds solely through the play of attraction and repulsion, by which market prices attract or repel capital” (207). For “[a]fter average prices, and their corresponding market prices, become stable for a time it reaches the consciousness of the individual capitalists that this equalization balances definite differences, so that they include these in their mutual calculations. The differences exist in the mind of the capitalists and are taken into account as grounds for compensating.” The qualification is illustrated by instances of mark-up pricing to “compensate” say for relatively high risk and “without always requiring the renewed action of competition to justify the motives or factors for calculating this compensation”

(206). This is a significant qualification. 18 Yet qualification it is, since the primary mechanism remains the output adjustment to deviations of market from cost price.

A more potent qualification to the standard adjustment process entails the phe- nomenon of Absolute Rent. Here in particular we find ourselves in a hybrid world between the noetical and the real or historical orientations. I allude to an assumed empirical property – first described in correspondence of 1862 and then in the Economic Manuscripts (see Chapter 10.C) – that the organic composition of capital (c/v) in agriculture falls short of the average (reflecting relatively backward tech- nology) yielding above-average returns to agricultural capital in the value scheme, which in consequence of the private-property arrangement cannot be fully com- peted away by attraction of new investment. Profit-rate uniformity is achieved by

a transfer to landowners from the above-average returns independent of Ricardian differential rent.

The basic axiom of the analysis in the Capital 3 version is introduced in a strange manner, insofar as it is taken for granted that a lower organic composition must apply in agriculture if absolute-rent is to be accounted for:

Whether the composition of agricultural capital is lower than that of the average social capital in a specific country where capitalist production prevails, for instance Eng- land, is a question which can only be decided statistically, and for our purposes it is superfluous to go into it in detail. In any case, it is theoretically established that the value of agricultural products can be higher than their price of production only on this assumption. . . .

18 A similar qualification will be found in Ricardo’s observation that prices may adjust to cost without output adjustment, but in the special case of zero-elastic demand (Hollander 1979:

291–2). On related complexities in J. S. Mill’s analysis, see Hollander 1985: 289–93.

30 Value and Distribution

This assumption, then, suffices for that form of rent which we are analysing here, and which can obtain only so long as this assumption holds good. Wherever this assumption no longer holds, the corresponding form of rent likewise no longer holds (MECW 37: 747).

The analysis itself sets out by reiterating the fundamental role of competition in an unrestricted system, or the freely operating Transformation, entailing “free move- ment [of capital] between the various spheres of production . . . to reduce the value to the price of production and thereby proportionally distribute the excess surplus value of this sphere of production among all spheres exploited by capital” (748). Allow now for restrictions to output expansion in agriculture, such that “capital meets an alien force which it can but partially, or not at all overcome, and which limits its investment in certain spheres, admitting it only under conditions which wholly or partly exclude that general equalisation of surplus value to an average profit.” The consequence will be “that the excess of the value of commodities in such spheres of production over their price of production would give rise to a sur- plus profit, which could be converted into rent and as such made independent with respect to profit. Such an alien force and barrier are presented by landed property, when confronting capital in its endeavour to invest in land; such a force is the landlord vis-`a-vis the capitalist.” Should there be any remaining doubt regarding the role of output adjustment in assuring the transition from values to prices-of- production in the standard case, it must dissipate with the emergence of Absolute Rent when output adjustment is prevented.

Marx seems here to ignore the possibility of output expansion at the intensive margin – of which he was fully aware (see note 6; also Chapter 7, p. 204) – and to suppose that all land in use necessarily yields a rent. Beyond this, there remains

a severe ambiguity regarding the determination of the average profit rate in the presence of absolute rent. The matter is touched on implicitly earlier in Capital 3 in the course of the discussion of the equalization process: “Nothing would be altered if capitals in certain spheres of production would not, for some reason, be subject to the process of equalisation. The average profit would then be computed on that portion of the social capital which enters the equalisation process” (173; emphasis added). This assertion, if generalized, has it that the average return is based on

a capital stock excluding the agricultural sector. But in what follows it is unclear whether the numerator in the profit-rate expression includes or excludes absolute rent: “It is evident that the average profit can be nothing but the total mass of surplus values allotted to the various quantities of capital proportionally to their magnitudes in the different spheres of production. It is the total realised unpaid labour, and this total mass, like the paid, congealed or living, labour, obtains in the total mass of commodities and money that falls to the capitalists.” In the Economic Manuscripts of 1861–63, however, Marx is explicit that the average profit rate is determined independently of the excluded sector, in brief that the industrial sector has priority (Chapter 10.C). Similarly, writing to Engels on 30 April 1868: “Those

31 [the] equalisation process, even if their rate of profit is higher than the social one.

F. On “Market Value” and Competition

This is important later for the development of rent” (MECW 43: 24).

Marx’s Absolute Rent has been the subject of severe criticism. In particular, as Howard and King have pointed out: “This ingenious argument has very strange implications, in that absolute rent would disappear altogether if the organic com- position in farming were to rise to the social average, even though land remained a scarce, privately owned, non-reproducible resource essential to the production of many commodities. This is not a defensible position. It would be greatly preferable to treat absolute rent as a form of monopoly profit, its magnitude determined by the operation of supply and demand rather than by the theory of value” (1985:

147; also 1992: 80). 19 The “monopoly” approach – which is not foreign to Marx (e.g., MECW 37: 627) is, incidentally, that of Ricardo, who had supplemented his differential rent by a form of absolute rent due to the pressure of demand for corn under conditions of zero marginal product, that is once capacity output has been reached (1951–73 1: 250–1; see Hollander 1995: 207). Marx, however, was carried away by his perception of an initial value scheme, taking his analysis to what he thought to be its logical conclusion. 20

There is also Marx’s second qualification. It is that the returns to major stock companies “in which the ratio of constant capital to the variable is so enormous, do not necessarily enter into the equalization of the general rate of profit” (MECW

37: 435). This qualification is more fully explained thus: “capitals . . . invested in large industrial enterprises, yield only large or small amounts of interest, so-called dividends, after all costs have been deducted. In railways, for instance. These do not therefore go into levelling the general rate of profit, because they yield a lower than average rate of profit. . . . Theoretically, they may be included in the calculation, and the result would then be a lower rate of profit than the seemingly existing rate, which is decisive for the capitalists . . .” (239; also 262). Whereas Marx insists that “the entire capitalist production rests” on “the equalisation of the rate of profit, or the movements of this equalisation” (432–3), the uniformity principle was applicable, in practice, to a shrinking fraction of the system.