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Microsoft word - agricultural ground-#1d3a34.doc4.2 AGRICULTURAL GROUND-RENT
(This text is a translation of J.Gouverneur, MANUEL DE THÉORIE ÉCONOMIQUE MARXISTE, 1987, p.138-143. The terms “industry” and “industrial” refer to all capitalist activities, excluding
The land is a special type of asset from several points of view: it is a « gift of nature » which, in its natural state, involves no human labour (so it has no value, in the strict sense); moreover, it only exists inlimited quantities (it is not reproducible, as are the majority of commodities); it admits of private property(unlike other natural goods : the air, for example); finally it is indispensable for the exercise of variousactivities, particularly building and agriculture. These characteristics enable the landowner to demand thepayment of a price (the ground-rent) from the builders or farmers to whom he hands over the use orownership of the land.1 This price does not correspond to any value or to any labour; it has as its originthe sole fact of the private ownership of the land; the owner’s revenue, as such, must therefore involve acharge on other revenues.2 In order to examine the ground-rent issue in its specificity, we must disregard all other possible sources of surplus revenue transfers. We therefore assume that all production is of a capitalist nature andthat all branches of production, including the agricultural branch, have an identical composition of capital(C/V).3 Moreover we assume that the supply of agricultural land is inelastic (agricultural land only exists in strictly limited quantity, unlike factories it is not reproducible) and that this supply of land is controlled(monopolized) by landowners distinct from agrarian capitalists. The latter compete with each other to getthe right of exploiting the soil (the right of having surplus revenue produced by peasant wage-earners),and the landowners only hand over this right against the payment of a suitable ground-rent.
The demand for agricultural products is assumed to be given and fixed (it depends on the number of people, the customary diet, etc.). As for the supply of agricultural products, it depends on the numberof farms run by capitalists and the volume of production obtained on each of them. For the sake ofsimplicity, we assume that all farms are identical in every respect but one. They are identical, amongother things, as far as size and production techniques are concerned (the latter are assumed to be givenand fixed). But they differ in the natural fertility of the soil, which gives rise to differences in productivity(quantity produced per hectare or per wage-earner) and in unit value (past and present labour per unitproduced).
Table 1 is based on the preceding assumptions. The composition of capital is the same in industry and agriculture (C/V = 4). The agricultural branch comprises three farms which are identical in everyrespect (K, L, C, V, S), except natural fertility and thus quantities produced: farm 1 is the most productive(unit value = 3.6), farm 3 is the least productive (unit value = 4.5). The total quantity produced by theagricultural branch amouts to 900, which is supposed to exactly match demand.
1 Ground-rent takes the form of periodical payments when the landowner simply rents the land, the form of a single paymentwhen he transfers the ownership of the land.
2 Where the land has been worked (improved by the use of fertilizers, for instance), the price obtained corresponds partly to thevalue created and transferred by the labour in question and partly to the fact of private ownership as such. For the sake ofsimplicity, we assume here that the land embodies no labour.
3 Most authors, on the contrary, consider that the agricultural branch has a lower composition of capital, which makes it losepart of its surplus revenue through the « equalization of profit rates ». See for instance E. Mandel, Traité d’économie marxiste,Paris, Union générale d’éditions, 1962, vol. 2, chap. IX, p. 172 onwards, and M. Gutelman, Structures et réformes agraires,Paris, Maspero, 1974, p. 94 onwards.
A. Starting data
K (= C + V)
B. Setting up the agricultural price
1) Price corresponding to social value (simple price)
2) Price securing the average profit rate to the capitalist on the marginal land (“DR”price)Unit price 3) Price securing a ground-rent to the owner of the marginal land ("AR” price)Unit price The unit social value of the agricultural branch, and thus the simple price, is obtained as usual dividing total value by total quantity (3600 : 900 = 4). In an industrial branch in free competition, thisprice would be the actual market price. However, if the market price of the agricultural product wereequal to the simple price, the agrarian capitalist running farm 3 would leave agriculture and start businessin industry: indeed, his profit rate in agriculture would only be 6% (see table 1), whereas starting businesswith an average technique in any industrial branch would secure him a profit rate of 20% (and entering anindustrial branch in free competition is always possible since factories, unlike soils, can be reproduced).
On the other hand, if the agrarian capitalist n°3 leaves agriculture, total production falls below the 900units necessary to meet demand: an adequate agricultural supply requires that the three farms be run,including farm n°3, the least fertile. But the latter will only be run if it ensures the capitalist a profit rate atleast equal to 20% : the market price of the agricultural product must therefore be higher than the simpleprice.
Let us assume that the market price is 4.5. At this price farm n°3 yields a profit rate equal to the average rate of 20%4: the marginal land is thus farmed and the agricultural supply meets demand. But atthis price (which is enjoyed by every farm) total revenue and total profit increase for each farm (see table1). The agricultural branch thus offers capitalists profitability prospects above the average, which givesrise to competition between capitalists to farm the soils. Since land only exists in limited quantity,landowners can increase rents; eventually they leave capitalists a profit of 200 (which is enough to ensureeach of them the average profit rate of 20%) and thus obtain a ground-rent, the level of which depends onthe fertility of the soil (hence the name of « differential rent ») : the higher the fertility, the higher thisrent.
If the market price is 4.5, the capitalist is prompted to cultivate the marginal land n°3, since he can obtain the average profit rate of 20%. However, if the capitalist obtains the required profit rate, thelandowner, on the other hand, does not get the least ground-rent: he thus is not prompted to rent his pieceof land to a capitalist entrepreneur ! Therefore, the agricultural price must be raised again in order to meeta twofold requirement : not only must the capitalist obtain the normal profit rate on the marginal soil (soas to be prompted to cultivate it), but the owner of this marginal soil must also obtain a rent (so as to beprompted to rent it). This rent is called the « absolute rent »: it is the ground-rent obtained by the owner ofthe marginal soil, and at the same time it is an additional rent obtained by the owners of the other soils(since the increased price applies to the product of all farms).
Let us assume that the market price is eventually set at 5.1 (see table 1) 5. At this price, total revenue and total profit still increase on each farm. However, due to competition between agrariancapitalists and the landowners’ monopoly on soils, each capitalist eventually gets no more than theaverage profit rate of 20%, while the landowners obtain a higher total ground-rent (990, of which 450 isdifferential rent and 540 is absolute rent).
The data of the above example are synthesized in figure 1. The latter clearly shows the differential rent earned by the landowners of farms 1 and 2, as well as the absolute rent earned by all landowners(including on farm 3, the least fertile)6.
4 A profit rate of 20% on an invested capital of 1000 (C+V) involves a profit (P) of 200. So C+V+P must be equal to 1200,which implies a market price of 4.5 (= 1200 : 266 2/3).
5 As they seek to maximize their rent, it is in the landowners’ interest that agricultural prices be as high as possible. The levelof agricultural prices, as well as the exact distribution of total agricultural surplus between capitalist profit and ground-rent,will depend on the balance of forces between all groups concerned (agrarian capitalists, landowners, industrial capitalistspurchasing agricultural raw materials or labour-power consuming agricultural products).
6 Let us also note that the absolute rent is identical per unit produced, whatever the farm (but total absolute rent variesaccording to farms, since the quantities produced are different).
- Figure 1 uses the same data as Table 1.
- Meaning of the various prices : (1) simple price = monetary expression of social value.
(2) “DR” price = price that secures the average profit rate to the capitalist on the marginal land and a differential rent to the owners of the other farms.
(3) “AR” price = price that secures a ground-rent (absolute rent) to the owner of the marginal land and an additional rent (absolute rent) to the owners of the other farms.
What is the source of all these ground-rents (both absolute and differential) ? As has already been mentioned, ground-rents originate from the sole fact of the private ownership of the land : they do notcorrespond to any labour, they do not derive from a creation of value or revenue by landowners. Thisbeing so, ground-rent necessarily involves a charge on other revenues, a deduction from the surplusrevenue created in the whole economy. This deduction is made explicit in table 2. Total surplus revenue created in the whole economy (industry + agriculture) amounts to 6600. Landowners charge a total rent of 990, capitalists (bothindustrial and agrarian) must share out a total profit of 5610. In accordance with the usual process ofequalization of profit rates, the average profit rate declines to 17% both in industry and agriculture.
Therefore, the ground-rent accruing to landowners reduces the profit rate accruing to capitalists (and thustheir potential for accumulation).
Table 2 : Agricultural ground-rent and surplus revenue transfers
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