this reason a man like Dove wants to develop rent out of this element. He says that rent does not depend upon the mass of agricultural products, but upon their value; but this depends upon the mass and productivity of the non-agricultural popu- lation. But it is also true of all other products that they can- not develop the character of commodities, unless the mass, the variety and the succession of other commodities form equiva- lents for them. We have shown this previously in the dis- cussion of the general nature of value. On the one hand the exchangeability of a certain product depends altogether on the multiplicity of commodities existing outside of it. On the other hand this circumstance determines in particular to what extent this product shall be put out as a commodity.
'No producer, whether an industrial or farmer, considered by himself alone, produces value or commodities. His prod- uct becomes a commodity only in definite social interrela- tions. It becomes a commodity, in the first place, to the Preliminaries. 749 extent that it represents social labor, so that the individual producer's labor counts as a part of the general social labor. And in the second place this social character of his labor appears impressed upon his product through its pecuniary character and through its general exchangeability determined by its price.
Instead of explaining rent, such vagaries confine them- selves to explaining merely surplus-value in general, or, still more absurdly, surplus-products in general, and on the other hand they make the mistake of ascribing a character, which belongs to all products in their capacity as commodities, to agricultural products exclusively. This is still more vulgarised by those who pass from a general analysis of value over to the realisation of a certain commodity's value. Every com- modity can realise its value only in the process of circu- lation, and whether it realises its value, and to what extent it does so, depends on the prevailing market conditions.
It is not a peculiarity of ground-rent, then, that the prod- ucts of agriculture develop into values and as values, that they face other commodities as commodities, and that prod- ucts not agricultural face them as commodities, or that they develop as specific expressions of social labor. The pecul- iarity of gTound-rent is rather that in proportion as the conditions develop, in which agricultural products develop as commodities (values), and in which they can realise their values, so does also property in land develop the power to appropriate an increasing portion of these values, which were created without its assistance, and so does an increasing por- tion of the surplus-value assume the form of ground-rent.
CHAPTER XXXVIII.
DIFFERENTIAL RENT. GENERAL REMARKS.
In the analysis of ground-rent we shall start from the assumption, that products paying such a rent, that is, prod- ucts a portion of whose surplus-value and general price re- 750 Capitalist Production.
solves itself into ground-rent, are sold at their prices of pro- duction, like all other commodities. It suffices for our pur- poses to confine ourselves to products of agriculture and mining. In other ^vords, their selling prices are made up of the elements of their cost (the value of the consumed constant and variable capital) plus a profit, which is determined by the average rate of profit and calculated on the total capital advanced, whether consumed or not consumed. We assume, then, that the average selling prices of these products are equal to their prices of production. The question is now, how can a ground-rent develop under these conditions, how can a portion of the profit become converted into ground-rent, so that a portion of the prices of the commodities falls into the hands of the landlord.
In order to show the general character of this form of groimd-rent, we assume that most of the factories of a certain country are driven by steam engines, while a certain smaller number of them are driven by natural waterfalls. Let us further assume that the price of production in those in- dustries amounts to 115 for a quantity of commodities which have consumed a capital of 100. The 15% of profit are calculated, not merely on the consumed capital of 100, but on the total capital invested in the production of this value in the commodities. We have previously shown that this price of production is not determined by the individual cost- price of every single producing industrial, but by the cost- price required on an average for the commodity under the average conditions of capital in the entire sphere of pro- duction. It is, in fact, the market price of production, as disting-uished from its oscillations. For it is in the fomi of the market price, and in a wider sense of the regailating market price, or market price of production, that the nature of value asserts itself in commodities. It becomes evident, in this way, that it is not determined by the labor time nec- essary in the case of any individual producer for the production of a certain quantity of commodities, or of some in- dividual commodity, but by the socially necessary labor time. This is that quantity of labor time, which is necessary for Differential Rent. General Remarks. 751 the production of the socially required total quantity of com- modities of any kind on the market under the existing average conditions of social production.
As definite figures are immaterial in this case, we shall furthermore assume that the cost price in the factories driven by water power is only 90 instead of 100. Since the regu- lating market price of production of this quantity of com- modities is 115, with a profit of 15%, the factories driven by water power will also sell their commodities at 115, the average price regulating the market price. Their profit would then be 25 instead of 15; the regulating market price of production would allow them a surplus-profit of 10%, not because they sell their commodities above the price of pro- duction, but because they sell them at the price of production, because their commodities are produced, or their capital ex- panded, under exceptionally favorable conditions, under con- ditions, which are above the average prevailing in this sphere.
Two things become evident at once.
1 ) The surplus-profit of the producers, who use the natural waterfall as motive power, is in the same class with all surplus-profit (and we have already analysed this category when discussing the prices of production), which is not the result of mere transactions in the sphere of circulation, of mere fluctuations of market prices. This surplus-profit, then, is likewise equal to the difference between the individual price of production of these favored producers and the general social price of production regulating the market in this entire sphere. This difference is equal to the excess of the general price of production of the commodities over their individual price of production. The two regailating limits of this excess are on the one hand the individual cost price, and thus the individual price of production, on the other hand the general price of production. The value of the commodities produced with water power is smaller, because a smaller quantity of labor is required for their production, namely less labor materialised in the constant capital. The labor here em- ployed is more productive, its individual power of produc- tion is greater than that employed in the majority of the 752 Capitalist Production.
factories of the same kind. Its gi'eater productive power is shown in the fact that it requires a smaller quantity of constant capital, a smaller quantity of materialised labor, than the others. It also requires less living labor, because the water wheel need not be heated. This greater individual power of production of the employed labor reduces the value, and at the same time the cost price and price of production of the commodity. For the individual industrial capitalist this expresses itself in a lower cost price of his commodities. He has to pay for less materialised labor, and less wages for less labor-power employed. Since the cost price of his commodities is smaller, his individual price of production is also smaller. His cost price is 90 instead of 100. His in- dividual price of production would therefore be only 103 i instead of 115 (100: 115 = 90: 103^). The difference between his individual price of production and the general one is limited by the difference between his individual cost price and the general one. This is one of the magnitudes which form the limits of his surplus-product. The other is the magnitude of the general price of production, into which the average rate of profit enters as a regulating factor. If coal should become cheaper, the difference between his in- dividual cost-price and the general cost-price would decrease, and with it his surplus-profit. If he should be compelled to sell his commodities at their individual value, or at the price of production determined by its individual value, then the difference would disappear. It is on the one side a result of the fact that the commodities are sold at their general market-price, the price brought about by the equalisation of individual prices through competition, on the other side a result of the fact that the greater individual productivity of the laborers employed by him does not benefit the laborers, but their employer, as does all productivity of labor. This productivity represents itself as a faculty of capital.
Since the level of the general price of production is one of the limits of the surplus-product, the level of the average rate of profit being one of its factors, it can have no other source but the difference between the g-eneral and the indi- Differential Rent. General Remarks. 753 vidual price of production, and consequently the difference between the general and the individual rate of profit. An excess of this difference would imply the sale of products above the price of production regulated by the market, not at this price.
2) So far as the surplus profit of the manufacturer using natural water power instead of steam for motive power does not differ in any way from any other surplus profit. All normal surplus profit, that is all surplus profit not due through accidental sales or fluctuations of the market price, is determined by the difference between the individual price of production of the commodities of these particular capitals and the general price of production, which regulates in a general way the market prices of the commodities produced by the capitals of this sphere of production, or the market prices of the commodities of the total capital invested in this sphere of production.
But now we come to the difference.
To what circumstance does the industrial capitalist in the present case owe his surplus-profit, the surplus resulting for him personally from the price of production regulated by the average rate of profit?
He owes it in the last resort to a natural power, the motiv^e power of water, which is found ready at hand in nature and which is not itself a product of labor like coal, which transforms water into steam. The water has no value, it need not be paid by an equivalent, it costs nothing. It is a natural agency of production, which is not produced by labor.
But this is not all. The manufacturer who works with a steam engine also employs natural powers, which cost him nothing and yet make his labor more productive and, to the extent that they cheapen the manufacture of the means of subsistence required for the laborers, increase the surplus- value and with it the profit. These natural powers are quite as much monopolised by capital as the natural powers of social labor arising from co-operation, division, etc. The manufacturer pays for the coal, but not for the faculty of 2V 754 Capitalist Production.
the water to alter its aggregate state, of passing over into steam, not for the elasticity of the steam, etc. The monopo- lisation of natural powers, that is of the increased productivity of labor due to them, is common to all capital working with steam engines. It may increase that portion of the product of labor which represents surplus-value as against that por- tion which is converted into wages. To the extent that it does this, it raises the general rate of profit, but it does not make any surplus-profit, for this consists of the excess of the individual profit over the average profit. The fact that the application of a natural power, of a waterfall, creates a surplus-profit in this case, cannot therefore be due solely to the circumstance that the increased productivity of labor is here due to a natural force. There must be still other mod- ifying circumstances.
Look at the reverse side. The mere application of natural powers to industry may influence the level of the general rate of profit, because it affects the quantity of labor necessary to produce the means of subsistence. But in itself it does not create any deviations from the general rate of profit, and this is the point in which w^e are interested here. Furthermore, the surjDlus-profit, which some individual capi- tal may ordinarily realise in its particular sphere of produc- tion — for the deviations of the rates of profits in the various spheres of production are continually balanced by compe- tition into an average rate — are due, aside from accidental deviations, to a reduction of the cost-price, of the cost of pro- duction. This reduction arises eitlier from the fact that a capital is used in greater than ordinary quantities, so that the dead expenses of the production are reduced, while the general causes increasing the productivity of labor, such as co-operation, division, etc., can exert themselves with a higher degree of intensity, their field of expression being larger. Or it may arise from the fact that, aside from the greater volume of the invested capital, better methods of labor, new inventions, improved machinery, chemical secrets in manufacture, etc., in short new and improved means of produc- tion and methods are used, which are above the average. The Differential Rent. General Remarks. 755 reduction of the cost price and the surplus profit arising from it arise here from the manner, in which the self-expand- ing capital is invested. They arise either from the circum- stance that it is concentrated in one hand in extraordinarily large masses (a circumstance which is neutralised when cap- itals of the same size become the average), or from the cir- cumstance that a capital of a certain size expands itself under exceptionally favorable circumstances (a circumstance which is neutralised as soon as the exceptional method of produc- tion becomes general or is superseded by a still more de- veloped one).
The cause of the surplus profit, then, arises here from the capital itself (which includes the labor set in motion by it); it is either due to the greater size of the capital employed, or to its more improved application; and there is no particu- lar reason why all the capital in the same sphere of pro- duction should not be invested in the same way. In fact, the competition between the capitals tends to neutralise their differences more and more. The determination of value by the socially necessary labor time asserts itself by the cheapen- ing of commodities and the necessity of making commodities under the same favorable conditions. But it is different with the surplus profit of the industrial capitalist who uses water power. The increased productive power of his labor is not due either to his capital or his labor, nor to the mere application of some natural force separate from capital and labor, but incorporated in the capital. It arises from the greater natural power of production of labor in conjunction with some other natural power, which natural power is not at the command of all capitals in this sphere, whereas iuch a thing as the elasticity of steam is. The application of this other natural power does not follow as a selfunderstood matter, whenever capital is invested in this sphere. It is a monopolised natural power, which, like a water fall, is only at the command of those who can avail themselves of particu- lar pieces of the globe and its opportunities. It is not within the power of capital to call to life this natural premise for a greater productivity of labor, whereas any capital may ^56 Capitalist Production.
transform water into steam. Water power is found on]y locally in nature, and wherever it does not exist, it cannoi: be created by any investment of capital. It is not dependent upon products which labor can secure, such as machines, coal, etc. It is dependent upon definite natural conditions of definite portions of the globe. That section of industrial capitalists who own waterfalls excludes the other section who do not own any from the application of this power, because the land, and particularly land supplied with water power, is limited. Of course this does not prevent the quantity of water power available for industrial purposes from being increased, even if the number of natural waterfalls in a certain country is limited. Water power may be artificially diverted, in order to exploit its motive force fully. Under certain conditions a water wheel may be inproved so as to use the highest possible amount of water power; in places where the ordinary wheel is not suitable for supplying water, turbines may be used, etc. The possession of this natural power forms a monopoly in the hand of its owner, it is a premise for the increase of the productivity of the invested capital, which cannot be created by the process of production of the capital itself. ^^^ This natural power, which can be monopolised in this way, is always attached to the soil. Such a natural power does not belong to the general condi- tions of that particular sphere of production, and not to those conditions, which may be made general.
]^ow let us assume that the waterfalls with the land on which they are found are held in the hands of persons, wlio are considered the owners of these portions of the globe, who are land o^^mers. These owners may exclude others and pre- vent them from investing capital in the waterfalls or using waterfalls by means of capital. They can permit such a use or forbid it. The capital cannot create a waterfall out of itself. Therefore the surplus profit, which arises from this employment of waterfall, is not due to capital, but to the harnessing of a natural power, which can be monopolised and has been monopolised, by capital. Under these circum- ^As to the extra profit, see the "Inquiry" (against Malthus).
Differential Rent. General Remarks. 757 stances the surplus-profit is transformed into ground-rent, that is, it falls into the hands of the owner of the waterfall. If the industrial capitalist pays to the owner of the water- fall 10 pounds sterling annually, then his profit is 15 pounds sterling, that is 15% on the 100 which then make up his cost of production; and he is just as well off, or possibly bet- ter, as all other capitalists of his sphere of production, who work with steam. It would not matter, if this capitalist should be the owner of the waterfall. He would in that case pocket the surplus profit of 10 pounds in his capacity as a landowner, not in his capacity as an industrial capitalist, just because this surplus is not due to his capital as such, but to a limited natural power separate from his capital, over which he has command, because he has a monopoly of it. And so it is converted into ground-rent.
1) It is evident that this is always a differential rent, for it does not enter as a determining factor into the average price of production of commodities, but rather is based on it. It always arises from the difference between the in- dividual price of production of the individual capital having command over monopoly of natural power and the general price of production of the total capital invested in that par- ticular sphere of production.
2) This ground-rent does not arise from the absolute in- crease of the productivity of the employed capital, or of the labor appropriated by it, since this can only reduce the value of commodities; it is due to the greater relative fertility of definite individual capitals invested in a certain sphere of production, as compared with investments of capital, which are excluded from these exceptional and natural conditions favoring the productivity. For instance, if the use of steam should offer overwhelming advantages not attached to the use of water power, or tending to neutralise the benefits to be derived from water power, then, water power would not be used and could not produce any surplus profit, or ground- rent, even though coal has a value and water power has not.
3) The natural power is not the source of the surplus profit, but only its natural basis, because this natural basis permits an increase in the productive power of labor. In the same way the use-value is the general bearer of the ex- change-value, but not its cause. If the same use-value could be created without labor, it would have no exchange-value, yet it would have the same useful effect as ever. On the other hand, nothing can have an exchange-value unless it has a use-vahie, unless it has this useful bearer of labor. Were it not for the fact that the different values are neutralised into prices of production, and the different individual prices of production into one average price of production regulating the market, the mere increase in the productivity of labor by the use of a waterfall would merely lower the price of the commodities produced with the waterfall, Mnthout adding anything to the share of profit contained in those com- modities. On the other hand, this increased productivity of labor would not be converted into surplus-value, were it not for the fact that capital appropriates the natural and social productivity of labor as though it were its own.
4) The private ownership of the waterfall has nothing to do with the creation of that portion of the surplus-value (profit), and of the price of a commodity in general, which is produced by the help of the waterfall. This surplus profit would also exist, if private property did not prevail, for instance, if the land supplied with the waterfall were ap- propriated by the industrial capitalist as masterless booty. Hence private property in land does not create that portion of value, which is transformed into sm-plus profit, but it merely enables the landowner, who has possession of the waterfall, to coax this surplus profit out of the pocket of the industrial capitalist into his own. It is the cause, not of the creation of this surplus profit, but of its transformation into ground-rent, of the appropriation of this portion of the profit, or of the price of commodities, by the owner of the land or of the waterfall.
5) It is evident that the price of the waterfall, that is the price which the owner of it would receive if he were to sell it to some other man, perhaps to the industrial capitalist, would not enter directly into the general price of production Differential Rent. General Remarks. 759 of the commodities, although it would enter into the individ- ual cost-jDrice of the industrial capitalist. For the rent arises here from the price of production of the commodities produced by steam machinery, and this price is regulated independently of the waterfall. Furthermore, this price of the waterfall is an irrational expression, behind which a real economic relation is concerned. The waterfall, like the earth in general, and like any natural force, has no value, because it does not represent any materialised labor, and therefore it really has no price, Avhich is normally but the expression of value in money. Where there is no value, it is obvious that it cannot be expressed in money. This price is merely capitalised rent. The ownership of land enables the land- owner to catch the difference between the individual profit and the average profit. The profit thus acquired, which is renewed every year, may be capitalised, and then it appears as the price of a natural power itself. If the surplus profit realised by the use of the waterfall amounts to 10 pounds sterling per year, and the average interest is 5%, then these 10 pounds sterling annually represent the interest on a capi- tal of 200 pounds sterling; and this capitalisation of the snnual 10 pounds sterling, which the waterfall enables its owner to catch, appears then as the capital-value of the waterfall itself. That it is not the waterfall itself, which has a value, but that its price is a mere reflex of the ap- propriated surplus profit, which the use of the waterfall yields to the industrial capitalist, capitalistically calculated, becomes at once evident in the fact that the price of 200 pounds sterling represents merely the product of a surplus profit of 10 pounds sterling for 20 years, whereas the same waterfall will enable its owner to catch these 10 pounds sterling every year for 30 years, or 100 years, or an indefinite num- ber of years, so long as circumstances remain the same. On the other hand, if some new method of production, which is not suitable for water power, should reduce the cost price of the commodities produced by steam machinery from 100 to 90 pounds sterling, the surplus profit, and with it the rent, and with it the price of the waterfall, would disappear.
760 Capitalist Production.
Xow that we have explained our general conception of differential rent, we will pass on to its consideration in agri- culture, strictly so-called. What applies to it will also apply on the whole to mines.
CHAPTER XXXIX.
THE FIRST FORM OF DIFFERENTIAL RENT.
(Differential Bent I.)
EiCARDO is quite right when he writes the following sen- tences: " Rent is always the difference between the produce ob- tained by the employment of two equal quantities of capi- tal and labor" (Principles, p. 59). [He means differential rent, for he assumes that no other rent but differential rent exists.] He should have added " On the same quantities of land," so far as ground-rent and not surplus profit in general is concerned.
In other words, surplus profit, if normal and not due to accidental transactions in the process of circulation, is always produced as a difference between the products of two equal quantities of capital and labor. This surplus profit is trans- formed into ground rent, when two equal quantities of capital and labor are employed on equal quantities of land with un- equal results. However, it is by no means absolutely neces- sary that this surplus profit should arise from unequal results of equal quantities of invested capital. The various invest- ments may also employ unequal quantities of capital. Indeed, this is generally the case. But equal aliquot parts, for in- stance 100 pounds sterling of each, give unequal results; that is, their rates of profit are different. This is the general prerequisite for the existence of surplus profit in any sphere, where capital is invested. The second prerequisite is the transformation of this surplus profit into ground-rent (and of rent in general as distinguished from profit); it should First Form of Differential Rent. 761 always be analysed, when, how, under what conditions this transformation takes place.