The production price can fall when additional capital is invested at a constant, a falling, or a rising rate of productivity.
This assumes that on the different soils, in keeping with how good each one is, the product grows in the same proportion as the capital laid out on it. That means: with the differences between the soils unchanged, the surplus product grows in proportion to the capital invested. So this case rules out any extra capital laid on soil A that would affect the differential rent. On A the rate of surplus profit is 0, and it stays 0, since we are assuming that the productive power of the extra capital — and so the rate of surplus profit — stays constant.
Under these assumptions, the governing production price can fall in one way only: A's production price stops governing, and the production price of the next better soil, B — or of any soil better than A — becomes the governing one instead. So capital is withdrawn from A, or from A and B as well if C's production price were to become the governing one, in which case every inferior soil would drop out of the competition among the soils that bear wheat. Under the given assumptions, the condition for this is that the extra product from the additional capital investments covers what is needed — so that the inferior soil A and the rest are no longer needed to produce the supply.
Take Table II, say, but with 18 quarters satisfying the need instead of 20. A would drop out; B, and with it the production price of 30s. per quarter, would become governing. The differential rent then takes this form:
Set against Table II, the total rent would have fallen from £36 to £9, and the corn rent from 12 quarters to 6. Total production would have fallen by only 2 quarters, from 20 to 18. Reckoned on the capital, the rate of surplus profit would have fallen to a third, from 180 per cent to 60 per cent. So here a fall in the production price corresponds to a fall in both the corn rent and the money rent.
Set against chapter 41's Table I, only the money rent falls; the corn rent is 6 quarters both times, but it comes to £18 in the one case and £9 in the other. For soil C the corn rent has stayed the same as in Table I. In fact, because the extra production won by the uniformly working additional capital threw A's product off the market and so removed soil A as a competing producer, a new differential rent I has been formed, in which the better soil B plays the same part that the inferior soil A played before. So on the one hand B's rent drops away; on the other hand, by assumption nothing has changed in the differences between B, C and D through the investment of additional capital. The part of the product that turns into rent therefore falls.
Suppose the earlier result — demand met with A excluded — had instead been produced by putting more than twice the capital on C, or on D, or on both at once. Then things would have come out differently. Take the case where the third investment of capital is made on C:
On C, set against Table IV, the product has risen from 6 quarters to 9, the surplus product from 2 quarters to 3, and the money rent from £3 to £4 1/2. But set C's money rent against Table II (£12) and Table I (£6), and it has fallen in both cases.
Now the total rental. In corn it is 7 quarters: down against Table II's 12 quarters, up against Table I's 6 quarters. In money it is £10 1/2, and that is down against both — down against Table I's £18 and against Table II's £36.
Had the third investment of £2 1/2 gone onto land B instead, that would indeed have changed how much was produced, but it would not have touched the rent. The successive investments are assumed to make no difference within the same type of land, and land B yields no rent.
Suppose instead that the third investment of capital had been made on D rather than on C. Then we have:
Here the total product is 22 quarters — more than double Table I's product, even though the capital advanced is only £17 1/2 against £10, so not twice as large. The total product is also 2 quarters greater than Table II's, even though the capital advanced in that table is larger, namely £20.
On land D, against Table I, the corn rent has grown from 3 quarters to 6, while the money rent has stayed the same at £9. Against Table II, D's corn rent has stayed the same at 6 quarters, but its money rent has fallen from £18 to £9.
Taking the total rents: the corn rent of IVb, 8 quarters, is greater than Table I's 6 quarters and than IVa's 7 quarters, but smaller than Table II's 12 quarters. The money rent of IVb, £12, is greater than IVa's £10 1/2 and smaller than Table I's £18 and Table II's £36.
If the rent on B falls away under the conditions of Table IVb, then to bring the total rental level with Table I's we need a further £6 of surplus profit — that is, 4 quarters at £1 1/2, the new production price. We then have a total rental of £18 again, as in Table I. How much extra capital this takes will not be the same everywhere: it depends on whether we lay it out on C, or on D, or split it between the two.
On C, £5 of capital yields 2 quarters of surplus product, so £10 of additional capital will yield 4 quarters of additional surplus product. On D, £5 of additional capital would be enough to produce the 4 quarters of additional corn rent — given the premise everything here rests on, that the productivity of the additional capital investments stays the same. We would then get the following tables.
Measured against Table II, the total money rental would come to exactly half. Table II is the case where the extra capitals were invested while production prices held unchanged.
The most important thing is to set the tables above beside Table I.
When the production price falls by half, from 60s. per quarter down to 30s., the total money rental comes out unchanged at £18, and the corn rent has doubled to match, from 6 quarters to 12. B's rent has disappeared. On C the money rent is half again as big in IVc, but only half as big in IVd. On D it stands still in IVc, at £9, and in IVd it goes up from £9 to £15. Output climbs from 10 quarters to 34 quarters in IVc and to 30 quarters in IVd; profit climbs from £2 to £5 1/2 in IVc, and in IVd to £4 1/2. The total capital laid out goes from £10 to £27 1/2 in the one case, from £10 to £22 1/2 in the other — more than doubled in both.
The rate of rent — rent measured against the capital advanced — stays the same right through Tables IV to IVd, on every type of land. That was already wrapped up in the assumption that the two successive capital investments keep the same rate of productivity on each type of land. Against Table I, though, it has fallen, both when you average across every type of land and when you take each type by itself. Table I gave 180 per cent on average; IVc gives 65 5/11 per cent (18 over 27 1/2, times 100), and IVd gives 80 per cent (18 over 22 1/2, times 100).
The average money rent per acre has risen. Under Table I it averaged £4 1/2 an acre over all 4 acres; over the 3 acres of IVc and IVd it now stands at £6 an acre. On the rent-bearing land alone the average goes from £6 an acre to £9. So rent per acre is worth more in money, and it now stands for twice the corn it did before. But the 12 quarters of corn rent now come to less than half of a total product of 34 quarters — or 30 quarters — where in Table I the 6 quarters came to three-fifths of a total of 10 quarters. Rent has therefore fallen as a fraction of the whole product, and fallen again when measured against the capital laid out — yet per acre its money value has risen, and its corn value has risen more.
Take D in Table IVd. Production costs there are £15, and £12 1/2 of that is capital laid out; the money rent is £15. In Table I that same D had production costs of £3, capital laid out of £2 1/2, and a money rent of £9 — three times its production costs, and close to four times the capital. In IVd, D's rent of £15 sits exactly at the production costs and only a fifth above the capital. Yet per acre the money rent is two-thirds bigger: £15 rather than £9. And in Table I the 3 quarters of corn rent is three-quarters of a total product of 4 quarters, while in IVd 10 quarters is half of the acre's whole product of 20 quarters. Rent per acre can rise in money, then, and rise again in corn, while still making up a smaller fraction of everything the land yields and still having fallen relative to the capital advanced.
In Table I the total product is worth £30, and the rent is £18 — more than half of that. In IVd the total product is worth £45, and the £18 of rent is less than half of it.
The reason the total money rent stays the same and the corn rent doubles — while corn rent and money rent per acre rise — is this: despite the price falling by £1 1/2 per quarter, that is by 50 per cent, and despite the land in competition shrinking from 4 acres to 3, more quarters of surplus product are produced. The corn price falls by 50 per cent; the surplus product grows by 100 per cent. But to bring this result about, under the conditions we have set, total production must grow threefold and the capital laid out on the better soils must more than double. How far the latter must grow depends first of all on how the extra capital is divided between the better and the best soils — on the standing assumption that, on any one type of land, capital's productivity rises in step with the size of the capital laid out there.
If the fall in the production price were smaller, less extra capital would be needed to produce the same money rent. And if the supply needed to drive A out of cultivation were greater — which depends not only on A's product per acre but also on the share A takes of the whole cultivated area — if the supply required for this were therefore greater, and with it the mass of extra capital required on soil better than A, then, other things being equal, the money rent and the corn rent would have grown still further, even though both would disappear on B.
Had the capital that fell away from A been £5, the two tables facing each other in this case would be II and IVd. Total product would have climbed from 20 quarters to 30 quarters. Money rent would be only half as big — £18 instead of £36. Corn rent would be unchanged, at 12 quarters.
Suppose D could turn out a total product of 44 quarters = £66 on a capital of £27 1/2 — that is, at D's old ratio of 4 quarters for every £2 1/2 of capital. Then the total money rental would come back to Table II's level, and the table would stand like this:
On that supposition total production would be 54 quarters, as against 20 quarters in Table II, and the money rent would be the same: £36. But total capital would be £37 1/2, where in Table II it was £20. So the capital advanced would have almost doubled while production almost tripled; the corn rent would have doubled and the money rent would have stayed where it was.
So when the price falls because extra money capital is invested on the better rent-bearing soils — on all of them above A — with the productivity of that extra capital unchanged, the capital laid out in total has a tendency not to rise in step with production and the corn rent. That is how a rising corn rent can make good the shortfall in the money rent that the falling price brings about.
The same law shows up in another way too: the capital advanced has to be larger the more of it is applied to C rather than to D — to the soil bearing less rent rather than to the soil bearing more.
Put plainly: for the money rent to stay the same or to rise, a definite extra quantity of surplus product has to be produced, and the more fertile the lands that yield that surplus product, the less capital this takes. Were the differences between B and C, and between C and D, greater still, still less extra capital would be required.
The exact proportion depends on four things: (1) the ratio in which the price falls — that is, the difference between B, now the soil bearing no rent, and A, which bore none before; (2) the ratio of the differences among the better soils, from B upward; (3) the amount of new extra capital invested; and (4) how that capital is distributed over the different qualities of soil.
In fact this law says nothing beyond what the first case already worked out: that when the production price is given, whatever its level, extra capital investment can raise the rent. For throwing A out has created a new differential rent I, with B now the worst land and £1 1/2 per quarter the new production price. This holds for Table IV just as it does for Table II. It is the same law — only B has taken A's place, and the starting-point is £1 1/2 per quarter instead of £3.
What matters here is only this one thing. In so far as some particular amount of extra capital was needed to draw capital off A and still meet the supply without it, we can see that this can go together with a rent per acre that stays level, rises, or falls — if not on every piece of land, then at least on some, and on the average of the land under cultivation.
We have seen that corn rent and money rent do not move together. Even so, it is only tradition that still gives corn rent any role in economics at all. One might just as well show that a manufacturer with a profit of £5 can buy far more of his own yarn than he could before with a profit of £10.
But this does show something: the landowning gentlemen, if they are at the same time owners of, or partners in, manufactories, sugar refineries, distilleries and the like, can still gain very considerably while the money rent falls — as producers of their own raw materials.
A falling rate of productivity on the extra capital brings nothing new in this respect: here too the production price can fall, and only in the same single way as in the case just considered — the extra capital laid out on better types of land than A has to make A's product superfluous, so that capital is withdrawn from A, or A is turned to the production of a different crop. That case was set out exhaustively just above. We have shown that under it the corn rent and money rent per acre can grow, decline, or remain the same.
To make the comparison easy, we first reproduce the table below:
Suppose, now, that the 16 quarters which B, C and D supply at a falling rate of productivity would be enough to push A out of cultivation. On that assumption, Table III becomes the following:
Here, with the extra capitals yielding at a falling rate, and with the fall differing from one type of land to another, the governing production price has dropped from £3 to £1 5/7. The capital investment is half again as much as before, up from £10 to £15. Money rent has nearly halved, from £18 to £9 3/7; corn rent, though, is down by just a twelfth — 6 quarters to 5 1/2 quarters. The total product rises from 10 quarters to 16 quarters — a gain of 60 per cent. Corn rent now comes to a little over a third of that total. The capital advanced is to the money rent as 15 : 9 3/7, where before the ratio was 10 : 18.
The case taken up now — the production price falls while the productivity of the extra capital rises — differs from variant I at the start of this chapter, where the price falls while the rate of productivity holds level, in nothing but this: when it takes a given amount of extra product to force land A out of cultivation, that happens faster here.
With extra capital laid out on the land, whether its productivity is falling or rising, how it acts can be uneven, depending on how those investments are spread over the different soils. To the extent that this uneven effect evens the differences out or sharpens them, the differential rent on the better soils — and with it the total rental — will fall or rise; this same thing already came up with differential rent I. Beyond that, everything turns on how much land and how much capital are thrown out along with A, and on the relative amount of capital that has to be advanced, when productivity is rising, to supply the extra product that is to meet the demand.
The one point here that is worth the trouble of investigating — and the one that leads us back to the investigation of how this differential profit turns into differential rent — is this:
In the first case, where the production price stays the same, any extra capital that happens to be put on land A is a matter of indifference to differential rent as such: land A still bears no rent, the price of what it produces stays as it was, and it goes on governing the market.
In the second case, variant I — the production price falls while the rate of productivity holds level — land A necessarily drops out, and still more in variant II, where the price falls and the rate of productivity falls with it; otherwise the extra capital on land A would have to push the production price up. But here, in variant III of the second case, where the production price falls because the productivity of the additional capital rises, that extra capital can, under certain circumstances, be laid out on land A just as well as on the better soils.
Let us assume that an additional £2 1/2 of capital, laid out on A, produces 1 1/5 quarters instead of 1 quarter.
Set this table beside the basic Table I, and beside Table II as well — the table in which twice the capital is laid out per acre while productivity stays the same, so the yield grows in step with the outlay.
As assumed, the governing production price is falling. Suppose it had stayed put at £3. Then the worst land, A — which bore no rent before, when only £2 1/2 was laid out on the acre — would now yield a rent, and no worse land would have been drawn into cultivation to make that happen. It would yield rent because productivity on that same soil would have increased, but only for a part of the capital, not for the original part. The first £3 of production costs bring in 1 quarter; the second £3 bring in 1 1/5 quarters; and the whole product of 2 1/5 quarters is now sold at its average price.
Since the rate of productivity rises with the extra capital laid out, that extra capital involves an improvement. It may lie in simply putting more capital into the acre (more fertilizer, more mechanized labour, and so on), or in the fact that only with this extra capital is it possible to bring about a qualitatively different and more productive way of applying capital. Either way, an outlay of £5 capital per acre has yielded a product of 2 1/5 quarters, while with half that outlay, £2 1/2, the product was only 1 quarter.
Setting aside temporary market conditions, the product of land A could keep being sold at a higher production price instead of the new average price only as long as a significant area of class A land kept being farmed with a capital of only £2 1/2 per acre. But as soon as the new proportion of £5 per acre, and with it the improved farming, had become general, the production price governing the market would have to fall to £2 8/11. The difference between the two portions of capital would then disappear, and an acre of A tilled with only £2 1/2 would in fact be abnormal — farmed in a way that no longer matches the new conditions of production. The difference would no longer be between what different portions of capital yield on the same acre; it would be between a sufficient and an insufficient total capital investment per acre.
Two things follow. First, when a larger number of farmers have insufficient capital — and it has to be a larger number, since a small number would simply be forced to sell below their production price — this works exactly like a descending scale of soil types. Poorer farming on worse soil raises the rent on the better soil; it can even create a rent on better-cultivated land of equally poor quality, a rent that land would not otherwise yield.
Second, differential rent, insofar as it arises from successive capital investments on the same total area, in reality melts down into a single average, one in which the effects of the separate investments can no longer be made out or held apart. So they do not produce rent on the worst land; instead they (1) make the average price of the total product — of one acre of A, say — the new governing price, and (2) present themselves as a change in the total amount of capital per acre that the new conditions require for satisfactory cultivation, with the individual successive investments and their respective effects fused together beyond distinguishing.
The same then holds for the separate differential rents of the better soil types. In every case they are determined by the difference between the average product of that type of land and the product of the worst land, at the increased capital investment that has now become the normal one.
No soil gives any product without capital being laid out on it. So even with simple differential rent — differential rent I — there is something already assumed. When it is said that 1 acre of A, the soil that governs the production price, yields such and such a product at such and such a price, and that the better soils B, C and D yield so much differential product and therefore, at the governing price, so much money rent, it always presupposes a definite amount of capital applied — one that counts as normal under the given conditions of production. It is just like industry: every line of business needs a definite minimum of capital before it can turn out commodities at their price of production.
If improvements bring successive capital investments onto the same soil, and this minimum shifts as a result, it shifts only gradually. As long as a certain number of acres — of A, say — have not yet received that extra working capital, the production price has stayed constant, and on that basis rent gets generated on the better-cultivated acres of A, while the rent of all the better soils B, C and D goes up. But once the new way of cultivating has carried through far enough to have become the normal one, the production price falls. Then the rent of the better lands drops back again, and the part of A that does not have what is now the average working capital has to sell below its own individual production price — that is, below the average profit.
With the production price falling, this happens even when the extra capital's productivity is declining — provided that the larger capital investment means the required total product is now supplied by the better soils, so that A's working capital is withdrawn, and A no longer competes in producing this particular thing, wheat for instance. The amount of capital now applied on average to B, the better soil that has taken over governing the price, counts as normal from here on. And when people speak of the differing fertility of lands, what is presupposed is that this new normal quantity of capital per acre is being applied.
On the other hand it is clear that this average capital investment — £8 per acre in England before 1848, £12 afterwards — is the standard when tenancy contracts are signed. For a farmer who spends more than that, the surplus profit does not turn into rent for as long as the contract runs. Whether it does so once the contract has expired will depend on how the farmers compete — on whether others are in a position to make the same extra advance. This is not about permanent improvements to the soil, which go on securing the increased product with the same capital outlay or even a smaller one. Permanent improvements, though they are a product of capital, work exactly like a natural differential quality of the soil.
So we see how differential rent II brings in an element that does not develop as such in differential rent I, since differential rent I can go on persisting independently of any change in the normal capital investment per acre. First: the results of the different capital investments on A, the price-governing soil, are blurred together, and their product simply appears as the normal average product per acre. Second: there is the change in the normal minimum, or in the average size, of the capital outlay per acre — so that this change presents itself as a property of the soil. And finally: there is a difference in the manner in which surplus profit is transformed into the form of rent.
Table VI further shows, measured against Tables I and II, that corn rent has risen to more than double against I, and by 1 1/5 quarters against II; while money rent has doubled against I but is unchanged against II. It would have grown significantly if, other things being equal, either the extra capital had gone more onto the better soils, or its effect on A had been smaller — which would leave A's governing average price per quarter standing higher.
If the rise in fertility brought about by the extra capital acted differently on the different types of soil, that would produce a change in their differential rents.
In any case it is proved that when the production price falls because the rate of productivity of the extra capital investment rises — that is, as soon as this productivity rises proportionally faster than the capital advanced — rent per acre, with a doubled capital investment say, can not merely double but more than double. But it can also fall, if rapidly growing productivity on soil A were to drive the production price much lower.
Suppose the extra capital laid on B and C, say, raised their productivity by a smaller proportion than the extra capital laid on A, so that the proportional differences for B and C shrink and the growth of the product does not offset the falling price. Measured against the case of Table II, the rent would then rise on D and fall on B and C.
Finally, the money rent would rise in either of two cases. Either, with fertility rising by the same proportion, more extra capital were laid out on the better lands than on A; or the extra capital on the better lands worked with a rising rate of productivity. In both cases the differences between the soils would widen.
The money rent falls when the improvement brought by extra capital shrinks the differences, whether wholly or in part, because it acts more on A than on B and C. And it falls by so much the more, the smaller the increase in productivity on the best lands. Whether the corn rent rises, falls, or stays where it is depends on how unevenly the improvement works.
The money rent rises, and the corn rent with it, when one of two things holds. Either more capital goes to the land that bears rent than to A, which bears none, and more to the land of high rent than to the land of lower rent, while the proportional difference in the extra fertility of the different soils stays the same. Or, with the same extra capital, fertility grows more on the better and best land than on A — and precisely in proportion as that increase in fertility is greater in the higher classes of land than in the lower ones.
Whatever the circumstances, the rent rises relatively when the greater productivity comes from an addition of capital and not simply from greater fertility while the capital outlay stays the same.
This is the absolute standpoint, and it shows that here, as in all earlier cases, the rent per acre — and the higher rent per acre (as with differential rent I, across the whole cultivated area: the level of the average rental) — is the result of more capital being invested in the land. That holds whether this capital works with a constant rate of productivity at constant or falling prices, with a falling rate of productivity at constant or falling prices, or with a rising rate of productivity at falling prices.
For our assumption — a constant price together with a constant, falling, or rising rate of productivity for the extra capital, and a falling price together with a constant, falling, or rising rate of productivity for it — comes down to three: a constant rate of productivity at a constant or falling price, a falling rate of productivity at a constant or falling price, and a rising rate of productivity at constant or falling prices.
Rent can stay flat or fall in every one of these cases. But it would have fallen further if applying the extra capital had not been the condition for the greater fertility, with everything else unchanged. So the extra capital is always the cause of the rent's relative height, even where the rent has fallen in absolute terms.
The production price can fall when additional capital is invested at a constant, a falling, or a rising rate of productivity.
This assumes that on the different soils, in keeping with how good each one is, the product grows in the same proportion as the capital laid out on it. That means: with the differences between the soils unchanged, the surplus product grows in proportion to the capital invested. So this case rules out any extra capital laid on soil A that would affect the differential rent. On A the rate of surplus profit is 0, and it stays 0, since we are assuming that the productive power of the extra capital — and so the rate of surplus profit — stays constant.
Under these assumptions, the governing production price can fall in one way only: A's production price stops governing, and the production price of the next better soil, B — or of any soil better than A — becomes the governing one instead. So capital is withdrawn from A, or from A and B as well if C's production price were to become the governing one, in which case every inferior soil would drop out of the competition among the soils that bear wheat. Under the given assumptions, the condition for this is that the extra product from the additional capital investments covers what is needed — so that the inferior soil A and the rest are no longer needed to produce the supply.
Take Table II, say, but with 18 quarters satisfying the need instead of 20. A would drop out; B, and with it the production price of 30s. per quarter, would become governing. The differential rent then takes this form:
Set against Table II, the total rent would have fallen from £36 to £9, and the corn rent from 12 quarters to 6. Total production would have fallen by only 2 quarters, from 20 to 18. Reckoned on the capital, the rate of surplus profit would have fallen to a third, from 180 per cent to 60 per cent. So here a fall in the production price corresponds to a fall in both the corn rent and the money rent.
Set against chapter 41's Table I, only the money rent falls; the corn rent is 6 quarters both times, but it comes to £18 in the one case and £9 in the other. For soil C the corn rent has stayed the same as in Table I. In fact, because the extra production won by the uniformly working additional capital threw A's product off the market and so removed soil A as a competing producer, a new differential rent I has been formed, in which the better soil B plays the same part that the inferior soil A played before. So on the one hand B's rent drops away; on the other hand, by assumption nothing has changed in the differences between B, C and D through the investment of additional capital. The part of the product that turns into rent therefore falls.
Suppose the earlier result — demand met with A excluded — had instead been produced by putting more than twice the capital on C, or on D, or on both at once. Then things would have come out differently. Take the case where the third investment of capital is made on C:
On C, set against Table IV, the product has risen from 6 quarters to 9, the surplus product from 2 quarters to 3, and the money rent from £3 to £4 1/2. But set C's money rent against Table II (£12) and Table I (£6), and it has fallen in both cases.
Now the total rental. In corn it is 7 quarters: down against Table II's 12 quarters, up against Table I's 6 quarters. In money it is £10 1/2, and that is down against both — down against Table I's £18 and against Table II's £36.
Had the third investment of £2 1/2 gone onto land B instead, that would indeed have changed how much was produced, but it would not have touched the rent. The successive investments are assumed to make no difference within the same type of land, and land B yields no rent.
Suppose instead that the third investment of capital had been made on D rather than on C. Then we have:
Here the total product is 22 quarters — more than double Table I's product, even though the capital advanced is only £17 1/2 against £10, so not twice as large. The total product is also 2 quarters greater than Table II's, even though the capital advanced in that table is larger, namely £20.
On land D, against Table I, the corn rent has grown from 3 quarters to 6, while the money rent has stayed the same at £9. Against Table II, D's corn rent has stayed the same at 6 quarters, but its money rent has fallen from £18 to £9.
Taking the total rents: the corn rent of IVb, 8 quarters, is greater than Table I's 6 quarters and than IVa's 7 quarters, but smaller than Table II's 12 quarters. The money rent of IVb, £12, is greater than IVa's £10 1/2 and smaller than Table I's £18 and Table II's £36.
If the rent on B falls away under the conditions of Table IVb, then to bring the total rental level with Table I's we need a further £6 of surplus profit — that is, 4 quarters at £1 1/2, the new production price. We then have a total rental of £18 again, as in Table I. How much extra capital this takes will not be the same everywhere: it depends on whether we lay it out on C, or on D, or split it between the two.
On C, £5 of capital yields 2 quarters of surplus product, so £10 of additional capital will yield 4 quarters of additional surplus product. On D, £5 of additional capital would be enough to produce the 4 quarters of additional corn rent — given the premise everything here rests on, that the productivity of the additional capital investments stays the same. We would then get the following tables.
Measured against Table II, the total money rental would come to exactly half. Table II is the case where the extra capitals were invested while production prices held unchanged.
The most important thing is to set the tables above beside Table I.
When the production price falls by half, from 60s. per quarter down to 30s., the total money rental comes out unchanged at £18, and the corn rent has doubled to match, from 6 quarters to 12. B's rent has disappeared. On C the money rent is half again as big in IVc, but only half as big in IVd. On D it stands still in IVc, at £9, and in IVd it goes up from £9 to £15. Output climbs from 10 quarters to 34 quarters in IVc and to 30 quarters in IVd; profit climbs from £2 to £5 1/2 in IVc, and in IVd to £4 1/2. The total capital laid out goes from £10 to £27 1/2 in the one case, from £10 to £22 1/2 in the other — more than doubled in both.
The rate of rent — rent measured against the capital advanced — stays the same right through Tables IV to IVd, on every type of land. That was already wrapped up in the assumption that the two successive capital investments keep the same rate of productivity on each type of land. Against Table I, though, it has fallen, both when you average across every type of land and when you take each type by itself. Table I gave 180 per cent on average; IVc gives 65 5/11 per cent (18 over 27 1/2, times 100), and IVd gives 80 per cent (18 over 22 1/2, times 100).
The average money rent per acre has risen. Under Table I it averaged £4 1/2 an acre over all 4 acres; over the 3 acres of IVc and IVd it now stands at £6 an acre. On the rent-bearing land alone the average goes from £6 an acre to £9. So rent per acre is worth more in money, and it now stands for twice the corn it did before. But the 12 quarters of corn rent now come to less than half of a total product of 34 quarters — or 30 quarters — where in Table I the 6 quarters came to three-fifths of a total of 10 quarters. Rent has therefore fallen as a fraction of the whole product, and fallen again when measured against the capital laid out — yet per acre its money value has risen, and its corn value has risen more.
Take D in Table IVd. Production costs there are £15, and £12 1/2 of that is capital laid out; the money rent is £15. In Table I that same D had production costs of £3, capital laid out of £2 1/2, and a money rent of £9 — three times its production costs, and close to four times the capital. In IVd, D's rent of £15 sits exactly at the production costs and only a fifth above the capital. Yet per acre the money rent is two-thirds bigger: £15 rather than £9. And in Table I the 3 quarters of corn rent is three-quarters of a total product of 4 quarters, while in IVd 10 quarters is half of the acre's whole product of 20 quarters. Rent per acre can rise in money, then, and rise again in corn, while still making up a smaller fraction of everything the land yields and still having fallen relative to the capital advanced.
In Table I the total product is worth £30, and the rent is £18 — more than half of that. In IVd the total product is worth £45, and the £18 of rent is less than half of it.
The reason the total money rent stays the same and the corn rent doubles — while corn rent and money rent per acre rise — is this: despite the price falling by £1 1/2 per quarter, that is by 50 per cent, and despite the land in competition shrinking from 4 acres to 3, more quarters of surplus product are produced. The corn price falls by 50 per cent; the surplus product grows by 100 per cent. But to bring this result about, under the conditions we have set, total production must grow threefold and the capital laid out on the better soils must more than double. How far the latter must grow depends first of all on how the extra capital is divided between the better and the best soils — on the standing assumption that, on any one type of land, capital's productivity rises in step with the size of the capital laid out there.
If the fall in the production price were smaller, less extra capital would be needed to produce the same money rent. And if the supply needed to drive A out of cultivation were greater — which depends not only on A's product per acre but also on the share A takes of the whole cultivated area — if the supply required for this were therefore greater, and with it the mass of extra capital required on soil better than A, then, other things being equal, the money rent and the corn rent would have grown still further, even though both would disappear on B.
Had the capital that fell away from A been £5, the two tables facing each other in this case would be II and IVd. Total product would have climbed from 20 quarters to 30 quarters. Money rent would be only half as big — £18 instead of £36. Corn rent would be unchanged, at 12 quarters.
Suppose D could turn out a total product of 44 quarters = £66 on a capital of £27 1/2 — that is, at D's old ratio of 4 quarters for every £2 1/2 of capital. Then the total money rental would come back to Table II's level, and the table would stand like this:
On that supposition total production would be 54 quarters, as against 20 quarters in Table II, and the money rent would be the same: £36. But total capital would be £37 1/2, where in Table II it was £20. So the capital advanced would have almost doubled while production almost tripled; the corn rent would have doubled and the money rent would have stayed where it was.
So when the price falls because extra money capital is invested on the better rent-bearing soils — on all of them above A — with the productivity of that extra capital unchanged, the capital laid out in total has a tendency not to rise in step with production and the corn rent. That is how a rising corn rent can make good the shortfall in the money rent that the falling price brings about.
The same law shows up in another way too: the capital advanced has to be larger the more of it is applied to C rather than to D — to the soil bearing less rent rather than to the soil bearing more.
Put plainly: for the money rent to stay the same or to rise, a definite extra quantity of surplus product has to be produced, and the more fertile the lands that yield that surplus product, the less capital this takes. Were the differences between B and C, and between C and D, greater still, still less extra capital would be required.
The exact proportion depends on four things: (1) the ratio in which the price falls — that is, the difference between B, now the soil bearing no rent, and A, which bore none before; (2) the ratio of the differences among the better soils, from B upward; (3) the amount of new extra capital invested; and (4) how that capital is distributed over the different qualities of soil.
In fact this law says nothing beyond what the first case already worked out: that when the production price is given, whatever its level, extra capital investment can raise the rent. For throwing A out has created a new differential rent I, with B now the worst land and £1 1/2 per quarter the new production price. This holds for Table IV just as it does for Table II. It is the same law — only B has taken A's place, and the starting-point is £1 1/2 per quarter instead of £3.
What matters here is only this one thing. In so far as some particular amount of extra capital was needed to draw capital off A and still meet the supply without it, we can see that this can go together with a rent per acre that stays level, rises, or falls — if not on every piece of land, then at least on some, and on the average of the land under cultivation.
We have seen that corn rent and money rent do not move together. Even so, it is only tradition that still gives corn rent any role in economics at all. One might just as well show that a manufacturer with a profit of £5 can buy far more of his own yarn than he could before with a profit of £10.
But this does show something: the landowning gentlemen, if they are at the same time owners of, or partners in, manufactories, sugar refineries, distilleries and the like, can still gain very considerably while the money rent falls — as producers of their own raw materials.
A falling rate of productivity on the extra capital brings nothing new in this respect: here too the production price can fall, and only in the same single way as in the case just considered — the extra capital laid out on better types of land than A has to make A's product superfluous, so that capital is withdrawn from A, or A is turned to the production of a different crop. That case was set out exhaustively just above. We have shown that under it the corn rent and money rent per acre can grow, decline, or remain the same.
To make the comparison easy, we first reproduce the table below:
Suppose, now, that the 16 quarters which B, C and D supply at a falling rate of productivity would be enough to push A out of cultivation. On that assumption, Table III becomes the following:
Here, with the extra capitals yielding at a falling rate, and with the fall differing from one type of land to another, the governing production price has dropped from £3 to £1 5/7. The capital investment is half again as much as before, up from £10 to £15. Money rent has nearly halved, from £18 to £9 3/7; corn rent, though, is down by just a twelfth — 6 quarters to 5 1/2 quarters. The total product rises from 10 quarters to 16 quarters — a gain of 60 per cent. Corn rent now comes to a little over a third of that total. The capital advanced is to the money rent as 15 : 9 3/7, where before the ratio was 10 : 18.
The case taken up now — the production price falls while the productivity of the extra capital rises — differs from variant I at the start of this chapter, where the price falls while the rate of productivity holds level, in nothing but this: when it takes a given amount of extra product to force land A out of cultivation, that happens faster here.
With extra capital laid out on the land, whether its productivity is falling or rising, how it acts can be uneven, depending on how those investments are spread over the different soils. To the extent that this uneven effect evens the differences out or sharpens them, the differential rent on the better soils — and with it the total rental — will fall or rise; this same thing already came up with differential rent I. Beyond that, everything turns on how much land and how much capital are thrown out along with A, and on the relative amount of capital that has to be advanced, when productivity is rising, to supply the extra product that is to meet the demand.
The one point here that is worth the trouble of investigating — and the one that leads us back to the investigation of how this differential profit turns into differential rent — is this:
In the first case, where the production price stays the same, any extra capital that happens to be put on land A is a matter of indifference to differential rent as such: land A still bears no rent, the price of what it produces stays as it was, and it goes on governing the market.
In the second case, variant I — the production price falls while the rate of productivity holds level — land A necessarily drops out, and still more in variant II, where the price falls and the rate of productivity falls with it; otherwise the extra capital on land A would have to push the production price up. But here, in variant III of the second case, where the production price falls because the productivity of the additional capital rises, that extra capital can, under certain circumstances, be laid out on land A just as well as on the better soils.
Let us assume that an additional £2 1/2 of capital, laid out on A, produces 1 1/5 quarters instead of 1 quarter.
Set this table beside the basic Table I, and beside Table II as well — the table in which twice the capital is laid out per acre while productivity stays the same, so the yield grows in step with the outlay.
As assumed, the governing production price is falling. Suppose it had stayed put at £3. Then the worst land, A — which bore no rent before, when only £2 1/2 was laid out on the acre — would now yield a rent, and no worse land would have been drawn into cultivation to make that happen. It would yield rent because productivity on that same soil would have increased, but only for a part of the capital, not for the original part. The first £3 of production costs bring in 1 quarter; the second £3 bring in 1 1/5 quarters; and the whole product of 2 1/5 quarters is now sold at its average price.
Since the rate of productivity rises with the extra capital laid out, that extra capital involves an improvement. It may lie in simply putting more capital into the acre (more fertilizer, more mechanized labour, and so on), or in the fact that only with this extra capital is it possible to bring about a qualitatively different and more productive way of applying capital. Either way, an outlay of £5 capital per acre has yielded a product of 2 1/5 quarters, while with half that outlay, £2 1/2, the product was only 1 quarter.
Setting aside temporary market conditions, the product of land A could keep being sold at a higher production price instead of the new average price only as long as a significant area of class A land kept being farmed with a capital of only £2 1/2 per acre. But as soon as the new proportion of £5 per acre, and with it the improved farming, had become general, the production price governing the market would have to fall to £2 8/11. The difference between the two portions of capital would then disappear, and an acre of A tilled with only £2 1/2 would in fact be abnormal — farmed in a way that no longer matches the new conditions of production. The difference would no longer be between what different portions of capital yield on the same acre; it would be between a sufficient and an insufficient total capital investment per acre.
Two things follow. First, when a larger number of farmers have insufficient capital — and it has to be a larger number, since a small number would simply be forced to sell below their production price — this works exactly like a descending scale of soil types. Poorer farming on worse soil raises the rent on the better soil; it can even create a rent on better-cultivated land of equally poor quality, a rent that land would not otherwise yield.
Second, differential rent, insofar as it arises from successive capital investments on the same total area, in reality melts down into a single average, one in which the effects of the separate investments can no longer be made out or held apart. So they do not produce rent on the worst land; instead they (1) make the average price of the total product — of one acre of A, say — the new governing price, and (2) present themselves as a change in the total amount of capital per acre that the new conditions require for satisfactory cultivation, with the individual successive investments and their respective effects fused together beyond distinguishing.
The same then holds for the separate differential rents of the better soil types. In every case they are determined by the difference between the average product of that type of land and the product of the worst land, at the increased capital investment that has now become the normal one.
No soil gives any product without capital being laid out on it. So even with simple differential rent — differential rent I — there is something already assumed. When it is said that 1 acre of A, the soil that governs the production price, yields such and such a product at such and such a price, and that the better soils B, C and D yield so much differential product and therefore, at the governing price, so much money rent, it always presupposes a definite amount of capital applied — one that counts as normal under the given conditions of production. It is just like industry: every line of business needs a definite minimum of capital before it can turn out commodities at their price of production.
If improvements bring successive capital investments onto the same soil, and this minimum shifts as a result, it shifts only gradually. As long as a certain number of acres — of A, say — have not yet received that extra working capital, the production price has stayed constant, and on that basis rent gets generated on the better-cultivated acres of A, while the rent of all the better soils B, C and D goes up. But once the new way of cultivating has carried through far enough to have become the normal one, the production price falls. Then the rent of the better lands drops back again, and the part of A that does not have what is now the average working capital has to sell below its own individual production price — that is, below the average profit.
With the production price falling, this happens even when the extra capital's productivity is declining — provided that the larger capital investment means the required total product is now supplied by the better soils, so that A's working capital is withdrawn, and A no longer competes in producing this particular thing, wheat for instance. The amount of capital now applied on average to B, the better soil that has taken over governing the price, counts as normal from here on. And when people speak of the differing fertility of lands, what is presupposed is that this new normal quantity of capital per acre is being applied.
On the other hand it is clear that this average capital investment — £8 per acre in England before 1848, £12 afterwards — is the standard when tenancy contracts are signed. For a farmer who spends more than that, the surplus profit does not turn into rent for as long as the contract runs. Whether it does so once the contract has expired will depend on how the farmers compete — on whether others are in a position to make the same extra advance. This is not about permanent improvements to the soil, which go on securing the increased product with the same capital outlay or even a smaller one. Permanent improvements, though they are a product of capital, work exactly like a natural differential quality of the soil.
So we see how differential rent II brings in an element that does not develop as such in differential rent I, since differential rent I can go on persisting independently of any change in the normal capital investment per acre. First: the results of the different capital investments on A, the price-governing soil, are blurred together, and their product simply appears as the normal average product per acre. Second: there is the change in the normal minimum, or in the average size, of the capital outlay per acre — so that this change presents itself as a property of the soil. And finally: there is a difference in the manner in which surplus profit is transformed into the form of rent.
Table VI further shows, measured against Tables I and II, that corn rent has risen to more than double against I, and by 1 1/5 quarters against II; while money rent has doubled against I but is unchanged against II. It would have grown significantly if, other things being equal, either the extra capital had gone more onto the better soils, or its effect on A had been smaller — which would leave A's governing average price per quarter standing higher.
If the rise in fertility brought about by the extra capital acted differently on the different types of soil, that would produce a change in their differential rents.
In any case it is proved that when the production price falls because the rate of productivity of the extra capital investment rises — that is, as soon as this productivity rises proportionally faster than the capital advanced — rent per acre, with a doubled capital investment say, can not merely double but more than double. But it can also fall, if rapidly growing productivity on soil A were to drive the production price much lower.
Suppose the extra capital laid on B and C, say, raised their productivity by a smaller proportion than the extra capital laid on A, so that the proportional differences for B and C shrink and the growth of the product does not offset the falling price. Measured against the case of Table II, the rent would then rise on D and fall on B and C.
Finally, the money rent would rise in either of two cases. Either, with fertility rising by the same proportion, more extra capital were laid out on the better lands than on A; or the extra capital on the better lands worked with a rising rate of productivity. In both cases the differences between the soils would widen.
The money rent falls when the improvement brought by extra capital shrinks the differences, whether wholly or in part, because it acts more on A than on B and C. And it falls by so much the more, the smaller the increase in productivity on the best lands. Whether the corn rent rises, falls, or stays where it is depends on how unevenly the improvement works.
The money rent rises, and the corn rent with it, when one of two things holds. Either more capital goes to the land that bears rent than to A, which bears none, and more to the land of high rent than to the land of lower rent, while the proportional difference in the extra fertility of the different soils stays the same. Or, with the same extra capital, fertility grows more on the better and best land than on A — and precisely in proportion as that increase in fertility is greater in the higher classes of land than in the lower ones.
Whatever the circumstances, the rent rises relatively when the greater productivity comes from an addition of capital and not simply from greater fertility while the capital outlay stays the same.
This is the absolute standpoint, and it shows that here, as in all earlier cases, the rent per acre — and the higher rent per acre (as with differential rent I, across the whole cultivated area: the level of the average rental) — is the result of more capital being invested in the land. That holds whether this capital works with a constant rate of productivity at constant or falling prices, with a falling rate of productivity at constant or falling prices, or with a rising rate of productivity at falling prices.
For our assumption — a constant price together with a constant, falling, or rising rate of productivity for the extra capital, and a falling price together with a constant, falling, or rising rate of productivity for it — comes down to three: a constant rate of productivity at a constant or falling price, a falling rate of productivity at a constant or falling price, and a rising rate of productivity at constant or falling prices.
Rent can stay flat or fall in every one of these cases. But it would have fallen further if applying the extra capital had not been the condition for the greater fertility, with everything else unchanged. So the extra capital is always the cause of the rent's relative height, even where the rent has fallen in absolute terms.