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

The Myth of fair wages (1970)

From the February 1970 issue of the Socialist Standard

There are many rocks appearing among the stormy waters which the Wilson government are trying to navigate and one of them is called pay. Fair pay for nurses, for dustmen, bus drivers, postmen. Fair pay for miners, sailors, policemen, even for Members of Parliament.

Everyone in fact seems to be in favour of "fair” pay from which it follows that hardly anyone is asking the essential question of what the word means. It seems to be generally accepted that somewhere there is a magical formula which can fix a fair wage — a wage exactly adjusted to the skills, dangers, usefulness, responsibility, unpleasantness of each and every job. Of course this would be a beautiful excuse (as if one were needed) for a government to set up another of those Royal Commissions which could spend a lot of time gathering enough material to fill up very thick, big, books, which they will eventually produce as their report and which will very probably be quickly forgotten by everyone. But in the absence of a high powered commission, perhaps we could launch our enquiry.

What are we going to take as our standards for a fair wage? If we start with skill we shall soon run up against the problem that different skills are acquired in different ways. Some can be learned at university, others handed down from one generation to the next. In any case, is it ‘fair' to pay for skill in itself, rather than the way in which it is applied?

Then there is the question of danger. But if wages were based on the dangers involved in the job. airline pilots would be paid no more than the rest of their crew, who obviously are all in equal danger — and the whole lot of them would be paid a great deal less than miners, or trawlermen, or scaffolders. And how much would stock brokers and insurance men get, under a danger-regulated wages system?

They would obviously be in favour of some other criteria being applied. Perhaps usefulness in some strange way the Stock Exchange and the insurance firms manage to convince themselves that their dealings are necessary to society. Yet the world manages to tick over when the Stock Exchange is shut, and people who don’t take out insurance policies seem as happy and healthy as those with a trunk full of the things. It would be a different story if, say, the electricity generating stations took the day off or if bakery workers decided they had had enough of their job. By those standards, people who do jobs which society could not do without— people like dustmen—should earn a lot more than stockbrokers.

Anyone who is not left completely bemused by that beautiful notion may care to pass on to considering the next standard, which is, responsibility. This is, in fact, one of the arguments used by air-line pilots to justify their relatively high pay—which is, they say, no more than due recognition of the fact that they have in their hands the lives of many people and a lot of very expensive hardware. Yet this argument is not extended to other workers in similar situations — train drivers and bus men, for example, are not expected to get anywhere near a pilot’s pay, nor even that of people like salesmen (one advertisement in The Times recently offered salesmens’ jobs for men of between 25 and 35 with a basic wage of between £2000 and £2500 which, with commission could reach £5000 per year whose failures would not destroy any equipment nor endanger any lives.

Should wages, then, be based upon how unpleasant a job is? Anyone who has spoken to a nurse, and who has heard of the sort of jobs they have to do for patients who are in the last stages of diseases like cancer, will know that no wage could possibly be high enough to reflect the unpleasantness of their job. Then what about mortuary attendants, ambulance drivers, who have to pick up what’s left of people after road accidents? Sewer men? they should all be getting far, far more than the Royal Family.

It is possible to labour this point almost indefinitely. The plain, simple fact is that there is no such thing as a fair wage, nor is there any method of estimating one, nor is there any profit in trying to find one. Wages are not governed by fairness. They are not a moral issue, to be influenced by arguments of danger or skill or usefulness or anything else.

Because wages are paid by one human being to another (or, to be exact, by one class to another), the fact that they are no different from the mass of other payments in capitalist society is obscured. Yet wages are as much the price of a commodity as what we pay for apples, or bread, or a hair cut, or a ride on a bus. What is it that fixes how much we pay for apples or a haircut ?

In the short term, it is whatever price is settled after a tug-of-war between the opposing forces of supply and demand. In England in the summer, apples fetch a pretty high price in the shops, but as the autumn comes, and apples from English orchards flood into the shops the price comes down abruptly. This same situation applies to wages. If employers are short of a particular type of worker, or if they are competing with other employers for his working ability, or if they desperately need workers to produce goods to cater for an inviting market, then wages for that worker will tend to rise. If the opposite is true they will end to fall, or rises will be harder to get and the employer will be in a strong position to exert a downward pressure on pay and working conditions.

The whole point about the nurses’ campaign for higher pay is that it is not backed up with any force. Nurses would not use the strike weapon, which is another way of saying that they would not use their bargaining power— which means that in the end their employer has the pull over them. Appeals to fairness and public sympathy have only a limited value — and the government exploits this situation to the full.

When the forces of supply and demand have extended their pressures, they cause a fluctuation in the price of the commodity but the line about which this fluctuation takes place is fixed by something other that market forces. This line is the value of the commodity and, in general terms, this consists of what is need of socially necessary labour to produce the commodity. Thus the fact that a great deal of social effort is needed, in both training and equipment, to get a pilot into the air and bring him back safely, means that his labour-power has a high value. But the same cannot be said of a dustman.

The reduction of labour-power into terms of value, implying as it does an unequal social relationship between human beings, is one of capitalism’s most degrading effects. It flows directly from the debasement of human ability, to be costed and evaluated, bought and sold, hired and discarded. It causes directly the separation of man from his work, it is the hinge of exploitation, in which our lives are regarded as fit subjects for probing to discover ever more intense methods of extracting surplus value from us. It means a life-time of servitude for the mass of the human race.

This issue, which has nothing to do with justice, is always ignored by the seekers after a fair wage. Yet anyone who really wants to make sure that human beings get what they work for is illogical not to look at the social system which denies them this. A long time ago, Marx pointed out the futility and conservatism of those who pine for fair wages. He knew that the answer was a revolutionary one - abolish the wages system.

Ivan

50 Years Ago: Distribution in Socialist Society (1970)

The 50 Years Ago column from the October 1970 issue of the Socialist Standard

Question and Answer

Dear Sir,

Will you kindly supply me with an answer to the following question?

In a system of society based upon the common ownership and democratic control and distributing wealth should the remuneration of each member of society be determined by the social labour time (accepting skilled labour as a multiple of unskilled labour) given in the service of the community, or should the total social product be equally divided among all the members of the community?
Hoping you will find room to reply to this (to me) most important question.

I remain

Yours, 

L. Thompson.

Reply.
Under Socialism, neither of the methods of ‘remuneration’ given by Mr. Thompson would prevail. The immense powers of production existing today would, if socially owned, provide plenty for all. When Socialism is established those powers will have reached a much higher degree of proficiency, and the best method of distribution will be to allow each as much as he or she desires of the social products. Each would contribute to the social production according to his capacity, and it would be a waste of time and energy to measure out what each should have. Today. for illustration, many municipalities supply water to their citizens on a ‘rate’ and find it more economical to let them take what they require for domestic purposes than to charge accordingly to quantity used.

Editorial Committee. 

[Socialist Standard, October 1920].

Exploitation (1974)

From the January 1974 issue of the Socialist Standard

From the time of his first arrival in England Marx was surrounded by what was then the most advanced section of capitalist society in the world, and the one showing the greatest contrast between affluence and abject poverty. There were available to him numerous works on economics and government reports, all of which Marx made use of and acknowledged in his book Capital. The following quotation from Vol. I demonstrates this:

  Once for all may I here state, that by classical political economy, I understand that economy which since the time of William Petty has investigated the real relations of production in bourgeois society, in contradiction to vulgar economy, which deals with appearances only, ruminates without ceasing on the materials long provided by scientific economy, and there seeks plausible explanations of the most obtrusive phenomena for bourgeois daily use, but for the rest, confines itself to systematizing in a pedantic way, and proclaiming for everlasting truths, the trite ideas held by the self complacent bourgeois with regard to their own world, to them the best of all worlds.

To Marx capitalism is a system of commodity production, and commodities are the unit of capitalist wealth. The Marxian analysis of capitalist production commences with the analysis of the commodity. A commodity is a useful article, a use-value, produced not for its usefulness to its producer but for exchange. Masses of commodities are put on the market where they exchange for one another. The equation of commodities with diverse use-values in exchange implies the possession of some common quality, otherwise equation would be impossible. All commodities, whatever their differences of use or appearance, are the products of labour: all of them embody a certain amount of human labour and so can be equated with one another.

There are many different kinds of labour, such as the labour of the tailor and that of the miner; they are but different ways of expending the mental and physical energy needed for the production of social wealth. Commodities not only exchange, but exchange in definite quantity—two tons of coal may exchange for one suit of clothes, and not two suits for one ton of coal. This quantitive exchange relationship of commodities is determined by the relative values of the commodities exchanged. A commodity has value to the extent that it contains social labour. In the illustration just used, a suit of clothes is twice as valuable as a ton of coal because there is contained in the suit twice as much social labour as in the ton of coal.

A valuable commodity such as gold is valuable because a considerable amount of social labour is taken to produce a small quantity. If gold were produced with the same expenditure of social labour as is taken to produce chairs, gold would have no more value than chairs. As labour is measured by time, the length of time taken to produce a commodity determines its value. If a suit of clothes is produced in ten hours and is exchanged for two tons of coal, then it follows that the time taken to produce a ton of coal is five hours.

It must not be imagined that Marx argued that the time taken by an individual to produce a commodity determines its value: that would mean otherwise identical commodities produced in different times having different values.

Capitalists do not buy Labour
The capitalist system of production is a system of profit-making. The capitalist expects to, and usually does, receive a greater amount of money at the end of the productive process than he originally put into it. If, as has been stated, commodities are exchanged at their value, the commodities produced for and sold by the capitalist must have a greater value than those purchased by him (raw material, machines, labour-power, etc.). Moreover, the increase in value must take place during the process of manufacture, in which process the commodities he purchases are turned into the finished product he sells. The increase in value implies the addition of labour. But does not the capitalist buy labour along with the raw material, machinery and other means of production, as a commodity at its value?

The capitalist does not buy labour; the commodity he buys from the worker is labour-power. The distinction between labour and labour-power is not a quibble but a fundamental distinction. The power to work or labour is what the worker sells, not the actual work he performs for his employer. Labour-power is a peculiar commodity because it has the power to produce a greater value than its own. The value of labour-power is determined by the value of the necessities for its own production. For example, a worker who consumes commodities containing four hours of labour can work for eight hours, and by so doing creates twice the value of his own labour-power. Because the capitalists have monopolized the ownership of the means of production, the workers are forced to sell their labour-power to them in order to live. In other words they are able to exploit the peculiarity of labour-power described above, and to take from the worker the surplus value created in production.

The existence of a free working class is a necessary condition for capitalist production. Before the workers could be turned into wage-slaves they had to be “freed” from the land and the instruments of labour: they had to be property-less in the means of production. In England this was accomplished by ejecting peasants from the land, and the seizure of common lands. There was thus created a class with no other means of existence than the sale of labour-power to the capitalist employers.

Once there exists the relationship of wage-earner and capitalist, it tends to perpetuate itself. By spending his wages as he must, the worker is forced continuously to sell his labour-power. The capitalists, because of their monopoly of the means of production, are able continuously to buy it and appropriate the surplus-value it creates. This surplus-value is divided into rent paid for land and buildings, interest paid for loans of money, taxes paid to the State for services performed on behalf of capitalism as a whole, and profit. Part of the profit is consumed by the capitalists, and part is reinvested in production.

The rate of reinvestment of profit is determined not by the whims of individual capitalists but by social forces over which they have no control. Competition and market conditions tend to reduce the prices of commodities. To meet this threat without reducing profits, capitalists endeavour to enlarge their businesses so that the costs of production can be reduced; this means the introduction of more efficient machinery, the speeding-up of the work process, and the effecting of economies made possible by large-scale production. Those capitalists who fail to do this will be in danger of being forced out of business.

The growth in size of businesses makes competition even more severe. Small concerns are always in danger of failure; only the largest and best-equipped are able to survive the struggle. Competition, by killing-off the small and less efficient concerns, concentrates control in the hands of relatively few large capitalist monopolies and also causes a continuous improvement in technique and an increase of productive capacity.

However, the same growth creates many problems. At first it requires an increase in the numbers of workers employed, but with advancing technical improvements the rate of employment falls whereas the rate of increase in the numbers of the working class tends to rise. Though these tendencies are offset by others, they are always at least potential pressures against the perpetual need of the working class to be employed. At all times the market for labour-power is subject to the factors which cause market conditions for all commodities to fluctuate. The capitalists have to look for fresh markets in non-capitalist (i.e. undeveloped) countries; and finally the whole world is brought into the stream of capitalist economic life.

Constant and Variable Capital

Technical improvements change the composition of capitals. A larger share is invested in means of production (machines, raw materials, etc.) called by Marx constant capital, and a smaller share in the purchase of labour-power or variable capital. This changed composition produces very important results. The capitalists reckon their profits on the whole of their capital, and any increase of capital that does not result in a corresponding increase of labour-power employed (since that is the only commodity which can produce surplus- value) results in a fall in the rate of profit.

A capital of £100, of which £80 represents constant and £20 variable capital, produces a surplus of—say— £20 and a rate of profit of 20 per cent. A capital of £200, of which £180 represents the constant capital and £20 is the variable capital, with the same exploitation of the workers, will still only produce surplus-value of £20: which means a lower rate of profit, that is 10 per cent.

As more and more capital is assuming the shape of machines (constant capital) and in proportion less is being invested in the purchase of labour-power (variable capital), it follows that the rate of profit is a falling one. In the highly industrialized countries, despite the intensification of exploitation by speeding-up and other methods, there is a continuing long-term tendency for the rate of profit to fall. To help overcome it, capitalists export capital to less advanced countries where the proportion of labour-power required in relation to the total capital is high and, as a result, the rate of profit is high also.

As the capitalist industrial system spreads over the world, the problems become wider in extent and more severe in their effects. To protect their interests the capitalists are compelled to form trusts, combines and mergers, and endeavour to restrict or eliminate competition and to restrict production to the requirements of the market.

Though the main purpose of these moves is the abolition of competition, it is never accomplished. Trusts and combines are usually national or semi-international in scope, though we are now witnessing the growth and power of multi-national concerns. Though all the producers supplying home markets might be organized in trusts, the capitalist market is the world market, and there the national and semi-international trusts struggle against one another. The effects of such international competition are far more harmful than those of competition between numerous small concerns. Thus, the contradiction between the order and efficiency of production, and the anarchy of the market, becomes and is irreconcilable: the economic crisis becomes a feature of capitalism. The contrast between the relatively increasing poverty of the working class and society’s increasing power for producing wealth becomes greater, as does the contrast between the social character of production and its private or class ownership and control.

In order to resolve this contradiction, the class—that is, the working class which is at present exploited and will continue to be exploited so long as wealth is produced as commodities—this class must take control of political power. This is the power which at the moment makes it perfectly legal for the capitalist class to appropriate the surplus-value produced by the combined efforts of the working class. It must be used now to convert the property relationship in the means of production from the present private or class ownership to one of common ownership: so that wealth—that is, useful things— may be produced because they are useful and necessary. And so society can go forward to its next goal, Socialism.

Robert Ambridge