Saturday, 24 September 2016

Capital III, Chapter 47 - Part 23

Under capitalist production, the price of land is capitalised rent, and so stands in an inverse relation to the rate of interest. But, this is not necessarily the case in the condition of pre-capitalist agriculture, where the land is farmed in small parcels owned by independent farmers. Under capitalist production, the farmer obtains credit on the same basis as any other capitalist, but that is not the case for the small peasant producer, who may have to resort to usurers etc. Capitalist production itself generates conditions where a large mass of loanable money-capital is available in a liquid market, as it is continually amassed from realised surplus value, and accumulated in the money reserves previously discussed. It creates a sizeable class of rich capitalists, who have retired from activity, and live off the interest from their accumulated money-capital. These conditions do not exist in pre-capitalist production, and so the interest to be paid, where money is to be borrowed, can be high.

At the same time, because the number of these small producers is high, and they need to have land, almost at any price, because they need it for their subsistence, this demand, against limited supply raises its price. So, land prices may be high, at the same time that interest rates are high.

“The relatively low interest, which the peasant derives here from the outlay of capital for the purchase of land (Mounier), corresponds here, on the other side, to the high usurious interest rate which he himself has to pay to his mortgage creditors. The Irish system bears out the same thing, only in another form.” (p 811)

Moreover, the price per hectare for these small parcels of land may be higher than for large estates, because there are a large number of small farmers exerting a demand for such land, but far fewer large farmers exerting a demand for large estates. The same thing applies today, in relation to the demand for social housing, compared to the demand for expensive properties.

This seems to be a situation where Marx is saying that the price of land is equal to the capitalised rent, except where it isn't! The price of land here is rather a function of the demand and supply for the particular land, just as the rate of interest is determined by the demand and supply of loanable money-capital, which is then a function of the use value of that money-capital, i.e. its capacity to self-expand.

This seems to me to be equally true in relation to land as it is to loanable money-capital. When agricultural profits are high, the demand for agricultural land will rise, and its price will rise accordingly. That land which is more fertile, or has other advantages, such as location, will be more in demand than land that does not have those advantages, and so its price will be higher. Rather than the rent then determining the price of the land, it will be the price of the land, which will determine the level of rent, just as the demand and supply for loanable money-capital determines the rate of interest.

When the demand for land is high, its price will rise, and rents will rise with it, and vice versa. When the price of land is high, and interest rates rise, the price of land will fall, because the owners of land will be more inclined to throw it on to the market, so as to realise its price, and then to invest the proceeds as loanable money-capital, at these higher rates of interest.

Similarly, the demand for land will fall, because potential buyers, who need to borrow, will see their cost of doing so rise, and the potential profit from utilising the land productively will fall.

As with loanable money-capital, because land has no value, it has no objectively determinable equilibrium market price. As with loanable money-capital, its market price can only move within certain upper and lower bounds. If the price of land rises too high, it eliminates the possibility of making agricultural profit. But, the price of land cannot fall to zero, because its owners will not sell it at that price.

Back To Part 22

Northern Soul Classics - Soul Serenade - Willie Mitchell

Friday, 23 September 2016

Friday Night Disco - Pick Up The Pieces - Average White Band

A Crisis Carol - Stave 4 - The Ghost of Crisis Future - Part 5

The perverse nature of the world the scrooges had created, therefore, was indicated by the fact that the more the real economy grew, real capital was accumulated, and more real wealth was generated, the more all of the fictitious wealth was destroyed. The more governments began again to see that the wealth of nations is built, not on the inflation of these asset prices, but on the accumulation of real capital. Politically, it was the ideas that represented the interests of this real capital that then began to take preference once more, as they had done during the period after WWII, and up to the 1980's.

Ideas about the problems caused by “Quarterly Capitalism”, and the need for a reform of corporate governance began to be expressed even more widely. In Britain, even Theresa May's Tory government raised the need for reform of corporate governance, including putting workers on company boards. The fact that such industrial democracy had existed in Germany, for decades, without the system collapsing, gave even greater confidence to apply such measures more extensively.

The ghost provided a voice over to the images that flashed before the scrooges eyes.

Factory Inspector Leonard Horner
“You capitalists have always been terrible at looking after your own long-term interests. You have plundered the natural resources of the planet that you required, and you nearly destroyed the workers you required to produce profits and so on. Its only when your state intervenes to provide some regulation of your self-destructive activities that you are saved from yourselves.”

In Anti-Duhring, Engels makes this point. As Marx describes in Capital, the very process of capital accumulation leads to capital as private property becoming a fetter on its own further development, and the end of capital as private property. The fetter of the monopoly of capitalist private property is burst asunder with the development of socialised capital in the form of the joint stock company and co-operative, and the corporation, trust etc.

“Many of these means of production and of communication are, from the outset, so colossal that, like the railways, they exclude all other forms of capitalistic exploitation. At a certain stage of development this form, too, no longer suffices: [the large-scale producers in one and the same branch of industry in a country unite in a “trust”, an association for the purpose of regulating production.” 

(Engels, Anti-Duhring, p 358)

“All the social functions of the capitalist are now performed by salaried employees. The capitalist no longer has any social activity save the pocketing of revenues, the clipping of coupons, and gambling on the Stock Exchange, where the different capitalists fleece each other of their capital. Just as at first the capitalist mode of production displaced the workers, so now it is displacing the capitalists, relegating them, just as it did the workers, to the superfluous population, although not immediately to the industrial reserve army.”

(ibid, p 359-60)

By focusing on their desire to suck out revenue as interest, the scrooges, via their representatives on company boards, had acted to undermine the very thing that provided those revenues, in the longer term. When they became fixated on the illusion of fictitious wealth, even over the appropriation of revenue, they acted to actually destroy wealth.  As Marx again puts it,

"The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives to this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner — and this gang knows nothing about production and has nothing to do with it. The Acts of 1844 and 1845 are proof of the growing power of these bandits, who are augmented by financiers and stock-jobbers."

(Capital III, Chapter 33)

Had they stepped aside, and allowed the interests of the socialised capital itself to prevail, the extent of their fictitious wealth would have been much smaller (share prices, bond prices, property prices) but their revenues would have been much greater.

“In the trusts, free competition changes into monopoly and the planless production of capitalist society capitulates before the planned production of the invading socialist society. Of course, this is initially still to the benefit of the capitalists.”

(ibid, p 358)

An economy that grows strongly, and accumulates capital, so as to produce larger masses of profit, can thereby also provide larger revenues as taxes, interest and rent. Just as the landowners made way for the capitalist farmer, and thereby settled for capitalist rent from their land, and the private capitalist gave way to the professional salaried manager, so the money-lending capitalist needed to step away from their attempts to control the socialised capital, via their boardroom representatives, and settle for the receipt of interest.

But, they have tried to hold on, as had done the landlords, and private capitalists. And, having seen what happened to their predecessors, they clung on with good reason.

“But, the exploitation becomes so palpable here that it must break down. No nation would put up with production directed by trusts, with such a barefaced exploitation of the community by a small band of coupon clippers.”

(ibid, p 358)

As the vision once more faded to black, the scrooges stood in front of the ghost. The goose flew off into the night sky. A shiny golden egg was being fondled by the ghost.

“So, what are we to take from that,” asked the scrooges? “We seem screwed either way.”

“Well,” said the ghost, “you could always try a more radical solution than all those you have tried so far.”

The scrooges faces brightened.

“What is that,” they enquired anxiously.

“You could always get a job, and earn your living like everyone else!”

Back To Part 4

Capital III, Chapter 47 - Part 22

Marx makes a comparison with the purchase of a slave, which I think does not entirely hold. When a slave is bought, he says, the capital no longer exists for the buyer. The price of the slave is the anticipated capitalised surplus value to be obtained, just as the price paid for land is the capitalised rent. The money spent buying the slave no longer exists for the buyer to be used to enable the slave to work and produce a surplus product that can be sold to generate a surplus value.

“The best proof of this is that it does not reappear for the slave-holder or the landowner except when he, in turn, sells his slaves or land.” (p 809)

However, this is not quite true. The difference between a slave and a piece of land is that the slave has value whereas the land does not. The slave is a product of labour, just as is a pack animal or a machine, whereas a piece of land is not. A slave requires the expenditure of labour-time for the production of food etc. needed for their reproduction, just as does any other element of constant capital. As such, the slave here represents another piece of fixed capital, whose value is transferred piecemeal to the end product, as wear and tear, just as with the wear and tear of a machine or pack animal.

As Marx puts it in the Grundrisse,

“In production based on slavery, as well as in patriarchal agriculture…..the slave does not come into consideration as engaged in exchange at all.” (p 419)

and “in the relations of slavery and serfdom….The slave stands in no relation whatsoever to the objective conditions of his labour; rather, labour itself, both in the form of the slave and in that of the serf, is classified as an inorganic condition of production along with other natural beings, such as cattle, as an accessory of the earth.” (p 489) 

The price paid for a slave, therefore, should be no different to the price paid for any other pack animal or machine.

The more appropriate comparison, therefore, is with the purchase of a bond or a share.

“The circumstance that the rent produced by a real investment of capital in this land is calculated by the new landowner as interest on capital which he has not invested in the land, but given away to acquire the land, does not in the least alter the economic nature of the land factor, any more than the circumstance that someone has paid £1,000 for 3% consols has anything to do with the capital out of whose revenue the interest on the national debt is paid. 

In fact, the money expended in purchasing land, like that in purchasing government bonds, is merely capital in itself, just as any value sum is capital in itself, potential capital, on the basis of the capitalist mode of production. What is paid for land, like that for government bonds or any other purchased commodity, is a sum of money. This is capital in itself, because it can be converted into capital. It depends upon the use put to it by the seller whether the money obtained by him is really transformed into capital or not. For the buyer, it can never again function as such, no more than any other money which he has definitely paid out.” (p 809)

This is another reason that the TSSI formulation, of using historic prices, as the basis of calculating the rate of profit, is wrong, because the historic price is simply a sum of money that, as soon as it was paid, ceased to be capital for the buyer.

“It figures in his accounts as interest-bearing capital, because he considers the income, received as rent from the land or as interest on state indebtedness, as interest on the money which the purchase of the claim to this revenue has cost him.” (p 809)

But, as Marx previously set out, this interest-bearing capital is entirely fictitious. It is not the money-capital laid out that somehow is transformed into a greater capital value, but only the productive-capital into which it has metamorphosed.  In fact, as Marx points out, it is impossible for money-capital to self-expand.

“In the case of small landed property the illusion is fostered still more that land itself possesses value and thus enters as capital into the price of production of the product, much as machines or raw materials.” (p 810)

That is because land is bought and sold as with any other commodity, and the price of this land, which must be bought before any production can take place, therefore, forms a significant element of the cost of production that must be met before any profit can be achieved.

Yet, all of the previous analysis has demonstrated that rent, like interest on loanable money-capital, is a deduction from surplus value. It is not value adding. The rent, or price of land, therefore, does not increase agricultural prices, it simply diminishes the amount of surplus value in the hands of the producer, and transfers it to the hands of the landlord or the seller of the land.

“The expenditure of money-capital for the purchase of land, then, is not an investment of agricultural capital. It is a decrease pro tanto in the capital which small peasants can employ in their own sphere of production. It reduces pro tanto the size of their means of production and thereby narrows the economic basis of reproduction. It subjects the small peasant to the money-lender, since credit proper occurs but rarely in this sphere in general. It is a hindrance to agriculture, even where such purchase takes place in the case of large estates. It contradicts in fact the capitalist mode of production, which is on the whole indifferent to whether the landowner is in debt, no matter whether he has inherited or purchased his estate. The nature of management of the leased estate itself is not altered whether the landowner pockets the rent himself or whether he must pay it out to the holder of his mortgage.” (p 810)

Thursday, 22 September 2016

Absolute Rent

Marx, following on from Ricardo, describes two types of capitalist rentAbsolute Rent and Differential Rent. Ricardo denied the existence of absolute rent, but Marx explains its basis, and inevitability in conditions where landed property exists.

Marx discusses Ricardo's argument against the existence of absolute rent, in Theories of Surplus Value, Chapter XIII. Ricardo's argument is a sleight of hand. He sets out an argument beginning with the colonisation theory of Adam Smith. So, he says, assume that a new land is colonised by agricultural producers. In this land, there is an abundance of land in general, for anyone who wishes to cultivate it. In those conditions, there could be no absolute rent, because any potential farmer would simply move to some other piece of land, and begin cultivating it.

He goes on to argue that, whilst there may be an abundance of land in general, there may not be an abundance of any particular type of land. The farmers would naturally start to cultivate the most fertile land first, he says, and at some point, all of this land would be occupied, and be cultivated. If additional land is to be cultivated, farmers would then have to start cultivating less fertile land. The consequence of this would be that for the same amount of capital and labour, the more fertile land would produce a greater level of output, and would thereby create a surplus profit, which would then constitute, not an absolute rent, but a differential rent.

Having set out this historical scenario, Ricardo then, however, simply uses it as the basis for describing agricultural production in general, including that in Europe, where no such conditions existed. As Marx points out, when capitalist production in agriculture commences, it does so in conditions where centuries of feudal land ownership already existed. There is no reason why an existing land owner will allow a farmer to use their land without requiring the farmer to pay an absolute rent.

The economic basis of this absolute rent, Marx explains, is the different organic composition of capital in agriculture compared to industry. Across all industries there is a variety of rates of profit. However, in industry, because capital seeks to obtain the highest rate of profit, it leaves those industries where the rate of profit is low, and migrates to those where it is high. In so doing, it increases the supply of commodities in the latter, so reducing their prices until they reach their price of production, and the supply of the former declines, raising their price towards their price of production. Its on this basis that an average rate of profit across all industries is formed.

However, Marx explains, in agriculture, this free movement of capital and labour is frustrated by the existence of land ownership. The landowner will not allow a farmer to use their land, unless they pay them an absolute rent, and where the land is more fertile, an additional differential rent on top of it. Suppose, the organic composition of capital in industry and agriculture is as follows:

Industry

c 80 + v 20 + s 10 = 110

Agriculture

c 60 + v 40 + s 20 = 120

The average rate of profit here is then 15%. If capital could move freely, it would leave industry and enter agriculture, where the rate of profit is higher. That would happen until agricultural prices fell, and industrial prices rose, so that they were both 115, and capital in both spheres produced the average rate of profit.

But, the landowner says to the farmer, you cannot use my land without paying me rent. The landlord can charge the farmer, in this scenario, £10 of absolute rent. Having done so, the capitalist farmer produces the same rate of profit as the industrial capitalist – 10%. It is not that the absolute rent, here, has added to the value of agricultural products. They sell only at their value of 120. The absolute rent arises, precisely because they do sell at their value of 120, and not at their price of production of 115.

The difference between the price of production of these products – 110 – and their value – 120 – is the basis of the absolute rent. The landlord is able to appropriate this rent, because they can refuse to allow the farmer to utilise the land for production, unless they pay this rent. Only when agricultural prices rise to 120, then can the farmer make the average profit of 10%, and still pay the £10 of absolute rent to the landlord.

Marx goes on to say that, therefore, if agriculture became more capital intensive, so that the organic composition of agriculture was higher than in industry, then absolute rent would disappear. However, whilst this economic basis, the fund from which the absolute rent is paid may disappear under those conditions, there seems no reason to believe that absolute rent itself disappears. After all, it will remain the case, as Marx argues against Ricardo, that the landlord will have no reason to lease their land to the farmer for nothing. It will still remain the case that the landlord will be able to withhold their land, until the farmer agrees to pay the rent, and the condition for the farmer being able to pay the rent will be that the market prices of agricultural commodities rises to a level whereby the farmer can pay the rent and still make the average profit.

Assume that we have a situation where:

Industry

c 60 + v 40 + s 20 = 120

Agriculture

c 70 + v 30 + s 15 = 115

Under these conditions, capital would leave agriculture and enter industrial production. The supply of industrial commodities would rise, and their prices would fall until they reached 117.5, where the same rate of profit would be made as in agriculture, with an average rate of profit of 17.5%. Similarly, the supply of agricultural commodities would decline, as capital left this sphere, and agricultural prices would rise, until the price reached 117.5.

However, the landlord would still demand rent for their land, just as a money-lending capitalist always demands interest on their money-capital from the industrial capitalist. If the landlord demands an absolute rent of 10, then capital will continue to migrate from agriculture to industry, reducing the supply of agricultural commodities until their price reaches a level whereby this absolute rent can be paid, and the farmer can still achieve the average profit.

The average rate of profit would have to fall to 12.5%. That would imply a significant movement of capital out of agricultural production, and into industrial production, thereby raising the supply of industrial commodities and reducing their prices from 120 to 112.5, and simultaneously reducing the supply of agricultural products whilst raising their price from 115 to 122.5. So, we would have

Industry

c 60 + v 40 = k 100 + p 12.5 = 112.5

Agriculture

c 70 + v 30 = k 100 + p 12.5 + r 10 = 122.5

Its clear then that a situation where the organic composition of capital is higher in agriculture than in industry requires a higher price of agricultural products, in order that an absolute rent can be paid, but it is by no means impossible for such an absolute rent to arise. It simply requires that a larger mass of land is withheld from production, so that agricultural production is reduced, and so that the supply of agricultural commodities is restricted, so that their prices rise to such a level that both absolute rent and average profit are obtained.


By the same token, it implies a higher investment of capital in industrial production than would otherwise have been the case, and a consequent increased supply of industrial commodities, along with a lower price for industrial products.

Capital III, Chapter 47 - Part 21

This form of production ends for reasons set out in Volume I. Firstly, it requires a combination of agricultural production and domestic industry. As the towns develop, and capitalist production, even as just manufacturing, prior to machine industry grows, the basis of domestic industrial production is undermined. This form of agricultural production succumbs to a degradation of the soil, due to over cultivation, a lack of the previous natural relations that replenished it, and inadequate capital, by the small farmer, to provide chemical fertilisers etc. In addition, the small farmers rely on use of common land for grazing cattle, hunting game, gathering fuel and so on. Over a period, the common lands are appropriated by the landlords.

The process of differentiation of the peasantry enables some to turn themselves into capitalist farmers, whilst others are reduced to becoming day labourers. As land is sold as a commodity, capitalists themselves buy land, and establish larger scale capitalist farms that are more efficient and undermine the small farmers. In the colonies, large-scale plantations, using slave labour, fulfil a similar function.

Alongside the development of capitalist agriculture goes an agricultural revolution that transforms methods and hugely reduces agricultural prices, so that the small producers are squeezed. The same process lays the basis of the land enclosures, which lead to a further expropriation of the small peasants, unable to afford the required outlays. The small-scale fragmented nature of the means of production prevent any form of socialised labour, or other socialisation of the productive forces.

“Usury and a taxation system must impoverish it everywhere. The expenditure of capital in the price of the land withdraws this capital from cultivation. An infinite fragmentation of means of production, and isolation of the producers themselves. Monstrous waste of human energy. Progressive deterioration of conditions of production and increased prices of means of production — an inevitable law of proprietorship of parcels. Calamity of seasonal abundance for this mode of production.” (p 807)

Because the land here assumes the form of a commodity that is bought and sold, the frequency of these sales increases, and the producer, including the landlord where they invest capital in such production, is increasingly faced with a rising price of land, as a cost of production.

“The price of land is nothing but capitalised and therefore anticipated rent. If capitalist methods are employed by agriculture, so that the landlord receives only rent, and the farmer pays nothing for land except this annual rent, then it is evident that the capital invested by the landowner himself in purchasing the land constitutes indeed an interest-bearing investment of capital for him, but has absolutely nothing to do with capital invested in agriculture itself. It forms neither a part of the fixed, nor of the circulating, capital employed here; it merely secures for the buyer a claim to receive annual rent, but has absolutely nothing to do with the production of the rent itself.” (p 808)

In this way, it is no different than loanable money capital, or fictitious capital, in the form of a share or a bond. A share entitles the owner to interest as a share of future profits in the form of a dividend. If A sells the share to B, they sell this right to receive those dividends. But, the money that B pays to A for the share, forms no part of the company's capital, that enables the profit to be created, and out of which those dividends are paid.

In reality, when B uses an amount of their capital to buy land from A, they do so in order to obtain the right to receive future rent from that land. But, this rent is then nothing more than interest on the loanable money-capital they have laid out for the purchase of the land, no different than had they done so to buy a share or bond. An example of that today is the number of “buy-to-let” landlords that have sprung up, and people who see such action as an alternative means of providing themselves with a pension, rather than buying bonds or shares into a pension fund. Their loanable money-capital is only used to buy property, if the interest they obtain on it, in the form of rent, is at least as lucrative as the interest they would receive from buying bonds or shares. Where that interest is higher in any of these asset classes, adjusted for risk and other costs, loanable money-capital moves towards it, pushing up the price of land, shares or bonds respectively, and thereby reducing the yield on that asset.

“Whether he bought the land dear or cheap, or whether he received it for nothing, alters nothing in the capital invested by the farmer in his establishment, and changes nothing in the rent, but merely alters the question whether it appears to him as interest or not, or as higher or lower interest respectively.” (p 808)