Economics: Theory of Rent (part 2) (1975)

From the April 1975 issue of the Socialist Standard

Link to part 1

Generally speaking, commodities sell at their price of production. This is calculated by the amount of the total capital involved in their production — constant capital (machinery, materials, etc.); variable capital (wages); plus a profit. Through the action of competing capitals an average rate of profit is formed, and all capitals, usefully employed, whatever the field of investment, will generally obtain the average.

This means that the range of goods produced by these capitals will sell at average prices appropriate to their classification as use-values. For instance, similar-quality bread produced by one baker would not alter dramatically in price from that of another baker, although their individual prices of production may be different. The amount of profit is the difference between the cost of production and the average price of production, which is not determined by individual prices, but by a socially determined price based on socially-necessary labour which regulates the market. Socially- necessary labour is not measured industry by industry.

It should be borne in mind that no capitalist manufacturing concern by itself produces commodities or value; products only become commodities when they come into contact with other commodities which provide their social equivalent. This means they all contain social labour — the labour of society. The individual labour which has gone into the production of groups of commodities forms part of the social labour. The value of commodities is determined by the amount of social labour, measured in time, and they exchange with one another according to the amount or proportion of this social labour vested in them. It is not individual producers who determine the proportion, but society generally. The realization of the market price (value) of a commodity depends purely on social interaction without regard to the nature of the commodities, whether they be agricultural products, motor cars, pig-iron or coal. Commodities can only average this price of production with reference to the whole field of commodities, and the total social capital, and cannot realize their price of production in groups isolated from other groups.

If we assumed that all commodities sell at their price of production, and that all capitals secured the average rate of profit, there would be no rent available for the landlord. As land in itself does not form part of the social cost of production, it cannot have any influence on the rate of profit. Therefore, rent must come from a profit over and above the average rate of profit — in effect a surplus profit. The individual cost of production for most capitalists within particular industries are generally the same, pro rata to the capital invested. The larger firms may be more efficient, although this is not always the case. Wage rates are regionally and nationally determined, and the cost of materials, machinery, etc. and the other elements of constant capital are similar. This will establish a general average cost of production.

Let us assume that a few factories within a certain country, because of their location are able to drive their machinery with the use of natural hydro power, whereas the great majority of other factories have to use electricity in the production of their commodities. Suppose that for every £100 unit of capital expended the factories using electricity make a profit of £15. The average price of production of the commodities in that case would be £115. (We are ignoring for the moment any temporary fluctuation of the market or any other accidental factors.) Assume that the factory using water power could produce the same quantity of commodities in the same time, but that instead of using a unit of £100 capital they need only use a unit of £90, because the water power was provided by a natural force, and not having to buy electricity they managed to save £10, this brings their production costs down to the £90 referred to above.

In effect, through the use of this force they were able to produce the same amount of commodities with less capital. In the normal way their commodities would contain less value than those of the capitalists using electricity, because less social labour was involved in their production. But the average price of production is based on the socially-necessary labour of the whole of society, not of individual factories. The majority of factories using electricity determine the price of production, because all commodities can only realize their value by acting as equivalents to each other over the whole field of commodity production, and not in separate compartments.

Individual industries do not produce commodities as value; it is society at large which creates the commodity form (e.g. a tailor produces a coat. He does not produce the exchange-value of a coat — that is socially determined.) The capitalist using water power, would, therefore, be able to sell his commodities at an average price of production, i.e. £115 — the same as the others. In that case, he would receive a surplus of £25 per unit of capital, an excess of £10 over all the other capitalists who had to buy electricity. This is a surplus profit; a profit over and above the average rate of profit, and this fact directly arises because the conditions under which he used his capital were more favourable; his exclusive use of the natural force denied to other capitalists, and which could not be reproduced by them and consequently was not at their command. Capital can reproduce electricity at will, but you cannot reproduce a natural waterfall or the land upon which it flows.

In the same way, capital cannot reproduce land, and therefore the landowner holds a position of monopoly. In the final reckoning, the surplus profit of the capitalist using water power was due entirely to this force — something which had no value because no labour had entered into its production, as with all natural power. The labour of harnessing this natural power would add value, and this is taken into account. Nevertheless, the cost of harnessing and supplying electricity has been shown to be greater, and it is this difference in cost which constitutes the surplus profit.

Inevitably the owner of the land over which the river or waterfall flowed would require payment for permission for the use of the land which contained the natural force, otherwise he would forbid its use. If the capitalist were to part with the surplus profit of £10 out of the £25, he had received, to the land- owner, that would constitute a ground rent. He would have, in effect, transferred his surplus profit to the landlord. At the end of the day he would have earned a profit of £15, the same as the body of capitalists who used electricity. If he owned the land it would make no difference to the formation of the ground rent. In that case he would retain the surplus profit of £10 in his capacity as landlord and not as an industrial capitalist, because the surplus profit was not due to his capital as such but to a natural force which he has monopolized.

It is evident that any capitalist who is able to use a natural force based on land, whether it be hydro power, naturally fertile land, natural pasture-land, land where the climate is more favourable, and other natural attributes, will be able to cut down his production cost below that of his fellow capitalists who are not in a similar position. He will always be in a position of earning a surplus profit over the average rate of profit, which he transfers to the landlord by way of ground rent for permission to use the land in question.

Agriculture and mining dominate the use of land. The degree of fertility of the soil and the potential mineral wealth will determine the amount of rent. But the existence of rent is due to the use of the land itself. There is an erroneous view held by the Labour Party and other left-wing parties that if you nationalize land you abolish rent. In fact, at no time has any Labour government taken any action to abolish ground rent. The object of the present Land Nationalization Bill is to curtail by taxation the profits of the landlords the price of whose land has risen because of planning and other consents — external factors. In other words, an attempt to prevent landowners from consuming the whole fruits of social progress instead of sharing it with their brother capitalists whose interests are represented by the State.

This makes no difference at all to the formation of ground rent, nor would it make any difference if all ground rent were paid to the State. It would mean that all land was owned by the State and has been taken from the private owners. How this came to pass, whether by nationalization with compensation or by confiscation does not matter. In point of fact, the State is inevitably the largest landlord in any country, and the State is the embodiment of all capitalists’ interests. It is a fallacy to assume that the State or local authority will act differently from private landlords and refrain from levying a ground rent.

At the moment, the Government owns directly, or through the nationalized industries, over 5¼ million acres of land. There are 345,000 acres of Crown Estates; 183,000 acres Church Commissioners; 248,000 acres National Coal Board (50 per cent, farm land); 220,000 acres British Rail (Sunday Times, 2nd February 1975):

The new landlords are operating on strictly commercial terms . . . the tenant farmers have Crown Estates, the Treasury, and tough minded agents for landlords.

(Wiltshire: Sunday Times 2nd Feb.)

The Crown Estates are one of the biggest landlords in London, owning large blocks of flats and houses in Regent’s Park and Kensington. If anything, the rents charged are higher than those of a private landlord, and furthermore Crown property is not subject to the application of Rent Acts, and courts and Rent Officers have no power to fix “fair rents”. According to the agricultural correspondent of the Daily Telegraph: “Tenant farmers occupy about 40 per cent, of the country’s holdings and farm nearly half of the agricultural land.” Rents vary from £30 per acre for good land to £12 per acre for other land. (Daily Telegraph 28th February 1975).

As the total amount of agricultural land in England and Wales is 27.2 million acres (Min. of Agriculture statistics 1972), tenant farmers alone pay an average of £260 millions rent annually for the use of the 13.6 million acres. The formation of rent over the whole 27.2 million acres would amount to approx. £540 million by present rent levies. Practically the whole of London is in the hands of ground landlords, both public and (very) private family trusts. The colossal amount of wealth which is appropriated annually in rent comes solely from the surplus value produced by the working class. Every advance in agricultural science, every intensification of the use of land, is of direct benefit to those parasites who have literally inherited the earth. In the same way, every advance in technology and science generally is appropriated for the benefit of their industrial capitalist brethren.

If human rights mean anything, they mean the right of every man, woman and child to the best possible existence society can provide. Freedom from paying rent, selling labour-power, and producing surplus value for a wealthy group of international idlers. Capitalist society simply cannot cope with the multifarious social problems which it has created because of the restrictive social relations which hold it together. Socialism is an urgent necessity, and working men and women everywhere must devote their thoughts and energies to its establishment through the Socialist Party of Great Britain.

Jim D'Arcy