"Alien barrier"
A literature review and statement of intent (that is, a draft of part of my dissertation)
Literature review
My dissertation’s singular intention is to develop a more rigorous understanding of the role of landed property in modern cities, with the central idea that the long cycles by which land is developed, occupied, and redeveloped is a particular manifestation of deeper tendencies in capitalist economies. There is, of course, an immense corpus pertaining to these broad questions in urban studies, geography, and related fields. But rather than focus on ethnographic or theoretical attempts to make sense of development which content themselves with description, I have looked for work that is concerned to a greater degree with the fundamental laws of landed property in capitalism. For that reason, I have turned to a now all but forgotten body of work and thought that dominated for a brief time in the 1970s and 80s, in which academics and researchers grappled with basic questions of development, tenancy, construction, rent payments (and mortgage payments!), and the like, in an attempt to understand the curious and convoluted role of landed property in capitalism. Though these debates on what may be broadly termed “urban ground-rent” no longer rage, I maintain that this is at our own peril. The consensus on these topics, if one exists at all, is profoundly flawed, based on simplistic and idealized models which contribute nothing to an actual understanding of the political or social role of landed property, and treat it instead as if it is any other commodity. Given the exploitative nature of rent, a lack of theoretical development contributes to a lack of organizational clarity when it comes to tenant struggles within and against the rent relation (which are themselves subservient to workers’ struggles) (Katz, 1986) (Botwinick, 2018).
Furthermore, without a more rigorously developed view to the inescapable machinery of urban life and the rise and fall of urban areas themselves, I argue that further theorizing will without question be either provincial or confused. This is clearly the case when we look at the periodicity of the rise in stature of rent theories in the academy. Anne Haila writes that “the inception of these debates has always been closely connected with urgent social issues. David Ricardo's theory had its origin in the controversy over the corn duty at the beginning of the last century. Henry George's prescriptions emanated from the acute social problems prevalent at the end of the 19th century. In the USA, the disintegration of the so-called 'suburban compromise' revived the discussion on rent in the 1960s” (Haila, 1990, p. 275). I may add that the 1970s was defined a period of boom and bust in commercial and industrial property alongside a dizzying rise in home prices, the 80s bolstered this perceived theoretical need as the sundering of Savings and Loans mortgage lenders turned into an apocalypse in home financing, and the entire field was finally effectively abandoned as the housing market (and prices) crashed in the US in the early 90s (Kerr, 1996). There is also a newer spate of work on rents, springing up after the 2008 Recession, spearheaded by Manuel Aalbers (Aalbers, 2008, 2017; Ward & Aalbers, 2016). I guess you could also say that this work will fit nicely into a narrative like this, given at the time of writing the owner market is once again imploding. Let me offer, however, as paltry recompense, that it is my intention the extensive elaboration of the basics of rent will carry beyond the present disaster. That said, if it is our fate to produce academic work lurching behind corresponding crises, then at least there is no shortage of them.
This literature review will be structured as follows. First, I will present a basic overview and critique of contemporary rent theory as it stands today. Second, I will delve into the insights offered by the alternative rent theory worked out decades ago and present some of its core concepts, such as differential rents, monopoly rent, and absolute rent, which together constitute a framework that makes sense of prices on properties, the capacity and reality of development and redevelopment, the existence and power of landowning, and the role of profits.
The Marginalist theory of rent
The study of rent is crucial if for no other reason than it is the only point at which space enters the airless and apolitical environment of economic study. The contemporary approach to rents is uniformly in the “marginalist” vein, a name referring to a larger economic consensus, dating back to the 1860s and 70s with pioneering work (the so-called “Marginalist Revolution”) by Jevons, Walras, and Menger. Marginalist economics prioritizes a focus on prices, which are held to be determined by the utility of the commodity for sale. This utility is known only to the buyer, and purports to indicate the enjoyment or satisfaction that buyer obtains from having ‘one more’ of that item, known as “hedonic” measures (Moody, 2017). The idea is that prices are determined at the margin leading to marginal (or incremental) adjustments in price that reflect consumer desires and furthermore provide information to firms to modify their production – or, put another way, price information is actually exogenous to the economy altogether. Producing firms are said to compete for consumers, following the earlier work of the French economist Augustin Cournot (Cournot, 1897), in an environment of so-called “perfect competition” which tends naturally toward an equilibrium state in which consumers pay fair prices for a vast array of like goods. It should be mentioned in passing that marginalism gains theoretical purchase precisely as the avant-garde of capitalist economies at the time undergo an intense and prolonged period of crisis, to the degree that “this woeful episode…became imprinted in historical memory as the Long Depression of 1873–1896”. He goes on to ask “what better a time could there be to foster a vision of perfect capitalism?” in which “equilibrium-as-bliss” generated by naturalized competition replaced previous theories of competition as a free-for-all, mortal war (Shaikh, 2016, pp. 340–341). These marginalist economists worked against a rising dissatisfaction with the deplorable state of capitalism at the time by changing the focus of economic study. As Simon Clarke writes, “marginalism thus narrowed the field of economics, made it into a technical rather than a political discipline and asked innocuous questions while still providing a naturalistic and rationalist justification for capitalist social relations” (Clarke, 2016, p. 186). Crucially, problems of the distribution of social wealth are ignored in marginalist economics – instead of asking who gets what, this concern is rendered irrelevant by assuming from the get that distribution is deduction from previously determined prices (Andreucci et al., 2017).
When it comes to cities and space, the marginalist theory of rent assumes no difference between commodity land and commodities in general. This has led to a seemingly endless procession of attempts to explain away this impossible conflation (how can a unique, immovable commodity be the same as a produced item which can be produced and sold anywhere?) with recourse to absurd models backed up by shaky math when it is dealt with at all. As a result of economics’ “narrowing”, rent theory is often relegated to an afterthought, or is simply treated as a part of the expenses of production paid by a capitalist for use of the land, just as they pay for instruments of production (like machines) and wages (for workers). This is obviously limited. Alfred Marshall, himself a legend of the marginalist theory, failed to develop this theory to any greater degree despite his attempts (including the introduction of “quasi-rents” and the generation of “special factor incomes”) to do so, hamstrung as he was by the need to prove partial equilibrium. This is because rent is not simply another price paid but is itself formed by profits from the production process, as we will see later, and also foregrounds landowning and landlords with discrete monopolies over their holdings – all of which are anathema to equilibrium. Ben Fine writes that the marginalist theory “has compromised over this situation by abandoning general equilibrium whenever a theory of rent is required and otherwise adopting a theory of consumer surplus, even occasionally recognizing its schizophrenia” (Fine, 1982, p. 108).
The last of these most succinctly defines the situation in marginalist rent theory as it stands in urban studies. Here, most theories claim lineage from the work of Johann Heinrich von Thünen, a German landowner during the Napoleonic Wars. Von Thünen’s political economic treatise The Isolated State imagined a polity existing on a single flat plane with no geographic features, isolated from all neighbors with respect to imports and influence. His rent theory relied on a concentric pattern of land use in which rents decrease with respect to travel times on lands further away from the central market location to which all farmers bring their agricultural output for sale and thus provided an easily intelligible model for land rent prices that seemed to incorporate space and location as relational variables. However, as economist Colin Clark bemoans, von Thünen’s work has been primarily seized upon by geographers “who are not content to treat it for what it is…but seek evidence to prove that the location patterns described by him are still applicable in the present-day world” (C. Clark, 1967) – see Hotelling’s “linear city model” (Hotelling, 1929) or Albert Weber’s industrial location games (Weber, 1929). The concentric model does not illuminate any actual features of the land, instead content to insist that the simple fact of location may entirely describe the reason why different rents may be demanded for different lands.
Undeterred, William Alonso (Alonso, 1967) with further modifications and codification by Richard Muth (Muth, 1969) and Edwin S. Mills (Mills, 1967), revived von Thünen’s model of agricultural rents and adapted it for urban rents, simply by swapping out the central market for a central business district (which contains all jobs) surrounded by rings of identical residential dwellings on identical parcels of land. It is this model, termed the Alonso-Mills-Muth model, that today represents the entire of contemporary rent theory, and continues to enjoy enduring relevance in the literature (Kulish et al., 2011; Lai & Tsai, 2008; Takahashi, 2014) as well as being the subject of more or less every “planning economics” class in the Euro-American world – despite its obvious flaws (Skouras, 1980).
That said, the A-M-M model is less an applicable theory and more a “pedagogical tool” (Sraffa, 1926) or even a “degenerate research program” (Ball, 1985, p. 507); all attempts to work with it in real conditions severely undermine the basic assumptions required to make the model sensible. Economics, upon being confronted with, or perhaps more accurately, unwilling or unable to confront the problems of rent and land in a reasonable manner, rent theory carries on as a specialized backwater within modern economic theory, dependent primarily on shell games and search optimization, mystical attempts to uncover the bare machinations of supply and demand, ever more complex mathematical ‘proofs’ in order to supply even a basic level of intelligibility, or bizarre fealty to clearly unhelpful and abstract models.
Alternative rent theory
There is, however, another theory of land and rent which is not of the marginalist tradition but instead concerns itself with labor and the value it produces in production. In this theory, rent is clearly defined either as the payment made by a capitalist to another capitalist who owns the land he needs to use in his production process or a deduction of wages. Here also, land is not just priced according to its location but also has the rent demanded for it modified by investment on the land (in the form of structures or otherwise), and as such, the possibility of crude universal models is dismissed from the first moment. Instead, conceptual rigor arises in this theory from decomposing the rent payment in itself in order to understand exactly not only why the rent payment exists but also how it may rise and fall over time and even on the same land. Contra the marginalist theory, this alternative theory also integrates rent into the larger economy, plucking it from the backwater and incorporating it into broader discussions of growth, profit, and investment by virtue of the focus being not on price but on value.[1]
These value-centric rent theories owe much to the theory of agricultural ground-rent developed by Karl Marx. His Capital Volume III and Theories of Surplus Value, Volume II deal with rent directly, with Capital Volume III in particular devoting ten chapters to the topic. That this comes at the “end” of his analysis of capitalism, which is begun, of course, in Volume I, is no accident – writing elsewhere, Marx writes that a truly rigorous, “scientific” analysis of capitalism must begin with the social existence of it as a system of economy and production. “Nothing seems more natural to begin with rent, i.e., with landed property”, he writes, since it is associated with the earth, the source of all production and all life, and with agriculture, the first form of production in all societies that have attained a measure of stability. But nothing would be more erroneous” [emphasis mine] (Marx, 1904, p. 212). The reason for this is that the social existence of capitalism distorts what is supposedly natural, “as though light of a particular hue were cast upon everything, tingeing all other colors and modifying their specific features” (Ibid.). To prove the point, he writes elsewhere that ground rent is the “most developed form of distribution” (Marx, 1993b, p. 95) and that this “cannot be understood without capital” but “capital can certainly be understood without ground rent. Capital is the all-dominating economic power of bourgeois society. It must form the starting-point as well as the finishing-point, and must be dealt with before landed property” (Marx, 1993b, p. 105). Personally, I do not have the time or, really, the need to do so here – but it must be noted that, to say the very least, the value-centric theory of rent is not just about a mere payment made from one person to another, but requires a view to what makes this possible historically and socially. This insistence clarifies and situates the difference between a value-centric theory and the later marginalist A-M-M models. It is worth citing this at length:
“Landed property presupposes that certain persons enjoy the monopoly of disposing of particular portions of the globe as exclusive spheres of their private will to the extension of all others. Once this is given, it is a question of developing the economic value of this monopoly, i.e. valorizing it, on the basis of capitalist production. Nothing is settled with the legal power of these persons to use and misuse certain portions of the globe. The use of this power depends entirely on economic conditions, which are independent of their wills. The legal conception itself means nothing more than that the landowner can behave in relation to the land just as any commodity owner can with his commodities” (Marx, 1993a, pp. 752–753).
From this statement, we can extract a few considerations: the landowner enjoys a total monopoly over their piece of property, which may be valorized. This monopoly is legally defined and enforced but economically salient; as such, there is a unity of purpose for both the state and the market in enshrining the powers conferred on any individual by land ownership. This ownership confers the ability to demand a rent as a deduction from value produced in production and is limited by the total value produced by labor (yes, even with respect to rent of buildings – more on this later). With that out of the way, we can move into the economic considerations of what landowning means when it comes to rent. Note here that this discussion is about, for the most part, rent paid from a capitalist to a landlord for the right to invest upon the land; rents paid from tenants to landlords are of a different tenor and will be discussed later.
Rent, disaggregated: differential rent
Given that we are now moving away from the marginalist price-fetishizing approach, it makes sense to establish that rents rise and fall, but within particular parameters. Marx’s rent categories exist to make sense of what drives rent-price, particularly increases and decreases wherein. He does not maintain, nor does value-centric rent theory in general, that these categories can sussed out of any given rent payment – that is besides the point, and ultimately better left to empirical studies of particular rental or housing markets. What these categories do offer is the ability to understand the various factors which go into the defining a rent and to give them a name. That said, I would be remiss to not note that there is the possibility of monopoly rents, a concept mentioned briefly by Marx as a matter of course and elaborated upon at length by David Harvey (Harvey, 2018; Harvey & Chatterjee, 1974) as well as Walker viz. the “new urban geography” (Walker, 1974, 1975, 1978) and (Richardson, 2013). The development of this throwaway line by Harvey is largely a product of the extensive errors he commits and misreadings he indulges in, detailed at length in (Farahani, 2021) as well as in (Ive, 1975) (Roberts, 2020) (Houghton, 1993) as well as by Irene Bruegel, who blasts Harvey’s “class monopoly rent” category as ill-defined to the point of meaninglessness before continuing to offer a beautiful rejoinder in favor of Marx’s approach: “Marx’s distinctions or categories are important if one is to understand whether any particular rent payment is a temporary, chance phenomenon or whether it is a long term, structural, feature of the system” (Bruegel, 1975, p. 43).
The first of these is differential rent, which Marx adapts from the British political economist David Ricardo. Differential rent is explained in its basic principles with the example of a piece of property which contains a waterfall, with associated hydropower that is usable in the production process (Marx, 1993a, pp. 784–785). Marx notes that the capitalist (Mr. A) who can successfully use the waterfall as a “monopolizable and monopolized natural force” (Marx, 1993a, p. 785) in his production process benefits from, basically, ‘free labor’ – whereas another capitalist (Mr. B) who does not have access to a waterfall must instead make up the increased productivity Mr. A enjoys as an ostensibly free gift of nature with additional fixed capital machinery and labor in his own production process. Mr. A is able to generate an additional, surplus profit owing to the fact that he can achieve a certain degree of productivity with less initial capital outlays, and thus less costs. A part of the surplus profit enjoyed by Mr. A given his use of the waterfall will be turned into rent, which is paid to the landowner of the waterfall for continued use of the waterfall.[2]
This may seem a bit provincial at the moment. But consider the effects of natural features of land in construction; the particularities of any given site (hardness of the soil, depth to bedrock, etc.) make some sites easier to build on and others more difficult – even if we just consider these in the abstract. What this means is, essentially, that given Marx is approaching agricultural ground-rent as a case study of a particular industry for the value-centric theory of rent, we can apply the insights gained therein to urban conditions as well. Here, natural characteristics of the soil on a particular property enter into the consideration of the price to produce a building. As Edwin Clark writes, “the principal difference between the nature of agricultural rent and urban rent, clearly articulated by Marx, is that in agriculture, land enters into the economy as an “element of production”, “an instrument of production”, whereas in the urban context land is a “condition”, a “sine qua non” “the foundation, the site, the spatial basis of operations” (E. Clark, 1987, p. 263). Put another way, land is the basis of all processes of production and capital accumulation. Very simple!
A prominent theorist of Marx’s ground-rent theory, Michael Ball, has disputed that Marx’s insights in agricultural rents can be transferred to urban conditions (Ball, 1977, 1985, 1987, 1989, 1989), and in many ways, this represented the crux of the debates of the period of ground-rent theorizing in the 1970s and 80s, with a wide swath of researchers dissenting (Edel, 1976; Harvey, 1976, 2018; Lipietz, 1982). The clearest critique of Ball’s “nonapplicability thesis”, however, was delivered by Anne Haila, who rather brusquely derides his attempt to differentiate the two as unfounded “what is needed for the nonapplicability argument to be valid is to show how the urban context distorts the essence of agricultural rent theory, or in what way agricultural rent theory is dependent on its specific context. Ball does not, however, give any arguments to this effect. He stops prematurely at the point where he has shown the differences of contexts” (Haila, 1989, p. 1527). Robin Murray gives several strong arguments against Ball as well, highlighting the principal features of modern landed property of which agricultural and urban uses are simply manifestations: first, property rights may be bought and sold (in the form of titles); second, the landlord is inactive in distribution (they do not actually have to pursue rents the way capitalists do profits); third, rent is not a direct payment from labor, but a residual one; and fourth, landlording and landholding no longer directly confers political or social power as it did in, say, the feudal mode of production (Murray, 1977). He also draws a further comparison between agriculture and construction, pointing out that both are “transforming” industries, meaning they have to superintend their production process not in the controlled environment in the factory but in a position that is ‘open’ to the natural world with respect to weather, a hard limit on standardization in the labor process as well as output, natural features of the soil, a slow turnover time, etc. (Murray, 1978, p. 12). Das has also shown that Marx’s rent theory can be fruitfully adapted to different contexts (Das, 2018).
To return to the point of the waterfall, we can analogize this in an urban context to the suitability of some lands for the construction of certain buildings with respect to soil, a suitable climate for building (e.g. shorter winters, less rain, etc.), and the like (Bon, 1992; Buckley, 2014; Finkel, 1997; Kohl & Spielau, 2022). We can also say that this applies to fundamental assumptions of usability: a plot is more likely to be developed if it has access to the sewers, has plumbing, electricity access, etc. Although a good deal more subtle than the waterfall example (and far less charismatic or memorable), the basic point remains: ground-rent in capitalism is a function of location but also certain characteristics which make that land more amenable for its intended use, particularly insofar as these beneficial characteristics reduce the amount of labor required to produce commodities on that land. These differences in land turn into differences in the production process, and can be measured by the resulting price of production of the commodity produced. For our purposes, let us say this commodity is an apartment building.
Consider two nearly identical plots right alongside each other in an urban area. Both plots have the appropriate hookups for plumbing, sewage, electricity, etc. as well as street access, are the same dimensions, will undergo the same production process with respect to the level of technical development, and are owned by the same landowner contracting with the same construction company. The only difference between the two is Plot A is composed of a typical soil admixture which is well suited for construction of apartment buildings of the intended type, while Plot B instead is composed of a clay soil which is difficult to dig. The same building is to be constructed on both plots. However, Plot B’s construction process takes longer given the difficulty of working Plot B’s worse soil, needing more digging equipment and labor-time spent on site before the foundation can be excavated and poured as is more easily done on Plot A. The increased outlay for machinery, wages, etc. on Plot B will mean that the resulting apartment building on B will have a higher cost of production (or construction), as the owner-developer will need to have their production costs paid for in the sale of it.
Let the sale or cost-price of the Building B = P + r, where P is the price of production and r a constant or average rate of profit. This is the price which the developer will sell Building B at, as they do not want to take a loss. But Building A, with a lower price of production P’ (owing to the reduced cost of machinery and labor in the production process), has a cost-price governed by P’ + r. Now let P – P’ = d, so d is the excess or surplus profit made by Building A. This surplus may be turned into rent, paid to the original landowner for the use of the better land. Whether it is or isn’t, there is another effect with respect to prices: the more expensive Building B, which has to ‘pay off’ a higher price of production P, sets the sale price for not only Building A but all other new and existing buildings of a similar type in the area. The worst (most expensive) constructions contribute to an overall increase in price given competitive pressures demand that prices tend toward a baseline within a market and within a sector. As new buildings on worse lands are sold, the need to cover their prices of production and make the average rate of profit draws the prices up overall, including for the sale of existing buildings which may have been completed years or even decades ago, and for new constructions with a lesser price of production, which are now making surplus profits that may turn into rent. If there is a risk the new, expensive construction does not sell at all, it will likely not get developed in the first place – this is the foremost rule for the developer when engaged in a process of land procurement. If the rent of the land (or the purchase price, which is best thought of as a payment for the capitalization of future rents) is too high to be paid for by a construction in accordance with the average market price, it will simply not get bought or developed by all but the most foolhardy (or stupid) entrepreneuring capitalists.
Of course, something has to turn into rent, if for no other reason than basic economic logic dictates no landholder will give his land over to another’s exclusive use for free as a “credit gratuit”, tantamount to the localized abolition of landed property (Marx, 1993a, p. 884) and thus the suspension of the foremost tactic of the landowner to “withdraw his land from cultivation [or construction] until economic conditions permit a valorization of it that yields him a surplus, whether the land is used for agriculture proper of for other productive purposes such as building” (Marx, 1993a, p. 891).
When we take into consideration the current level of development of cities and infrastructure, etc. this concept of differential rent becomes rather more illuminating. Francois Lamarche writes that we may define differential rent as “a function of the advantages offered by the site of a property, and which do not depend directly on any action by the owner…this rent is termed differential because the situational advantages on which it is based are not evenly distributed throughout space” (Lamarche, 1976, p. 100). That is, differential rents adhere to landed property because lands, landlords, and uses and relevant features thereof both 1) are non-identical and unique in location and characteristics 2) are affected by other features on other lands as well as development in general and 3) landlords are different in their motivations and business practices (Markusen & Markusen, 1978; Massey & Catalano, 1978). Stilwell highlights that this culminates in the short-run in messy and ambiguous development that inform the likewise development of differential rent: “processes of circular and cumulative causation are apparent but a more complex theory is needed because, as we have seen, directional changes are possible; the existence of depressed regions, ghost towns, and so on is a clear witness to that” (Stilwell, 1978, p. 25).
These exogenous differentials relate immediately to improvements and benefits upon the land of the type to appear in urban contexts – to this end, Marx approvingly cites George Opdyke in Volume III (Marx, 1993a, p. 807), who writes in 1851 on the increase of differential rent:
“Again, little more than half a century has elapsed since the land on which the city of Cincinnati stands, was purchased at one dollar per acre. There was then no capital there. Now there are many millions of capital there; and hence, we now find the market value of the land, exclusive of the erections, as many millions. It is thus of all other cities, towns, and villages throughout the civilized world…the market value of the land is merely the reflection of the value of the productive capital placed upon it and in its immediate vicinity” (Opdyke, 1851, p. 91).
Bandyopadhyay notes the socio-economic importance: “the land-associated enjoyment of life is not only quantitatively differentiated, but qualitatively as well. In this respect the analysis leads one beyond income inequalities to issues of differential access to urban services, environmental qualities, and a set of positively evaluated location-related ‘life-experiences’” (Bandyopadhyay, 1982, p. 174).
In sum, differential rent places the focus on individual plots of land arrayed in a vast system of different plots. It dispenses with the marginalist prioritization of location alone and notes that through construction and other processes of capital investment locational benefits can actually change over time – an objective truth we see time and again through historical analyses of existing cities (Bentivegna, 1985). In a sense, we can say gentrification owes much to a runaway modification of received locational benefits (Davis, 2021; Sims, 2021; Smith, 1979, 1985, 1987, 1996; Stein, 2019), in particular noting that “planning permissions are grants to capitalized rents” (Murray, 1978, p. 28) (Lojkine, 1976) (Scott, 2013). For more on the intermeshed role of the state at all points of the existence and development of landed property, look especially to (Clarke & Ginsburg, 1976) and other essays collected in Political economy and the housing question (Conference of Socialist Economists, 1975).
Absolute rent
Whereas differential rent can be broadly summed up as a deepening and extending of the marginalist theory, insofar as both are related in their most abstract formations to the unique characteristics and qualities of land plots, absolute rent as a concept relates land to the capitalist economy as a whole. Marx lays out the precepts of absolute rent in Chapter 45 of Capital Volume III, and we can see the basic premise in the schematic of Plot A and B above; at its simplest, it deals with the ability of any given landowner to withhold their land from capital investment, coupled with the fact that the price of production of a building is “not at all identical with its value” (Marx, 1993a, p. 892).
This point – that price and value are distinct from each other – requires an extensive detour into Marx’s theory of value, which I will not do here, because it’s just a literature review. I borrow the words of Ben Fine: “Marx’s treatment of the transformation of values into prices of production and its relation to his value theory is not of direct concern to us. It does, however, have considerable bearing on the development of his rent theory” (Fine, 1979, p. 242). The discussion to follow is developed with extensive influence from (Sheppard & Barnes, 2015) and (Farjoun & Machover, 2020), as well as (Shaikh, 2016), all owing to the work on relative prices pioneered by Sraffa (Sraffa, 1926, 1975, 1998).
Salient for now is an understanding of the organic composition of capital that goes into the production of a commodity in a particular industry – in our case, residential buildings in construction. A higher organic composition of capital within an industry refers to the greater use of machinery, or fixed capital, with respect to labor, or variable capital relative to that of the average social capital. In construction, as well as in agriculture (at the time of Marx’s writing!), the organic composition of capital is extraordinarily low with respect to the average social capital (Ryndina & Chernikov, 1985) (Bon, 1992; Evans, 1990; Korczynski, 1999; LePatner, 2008). Given this condition, the value of a building stands “must stand above its price of production…such a capital produces more surplus-value given the same exploitation of labor, and therefore more profit…because it applies more living labor. The value of its product thus stands above its price of production, because this price of production is equal to the replacement of the capital plus the average profit, and the average profit is less than the profit produced in this commodity” (Marx, 1993a, p. 893). Among other things, this means that the rate of profit in construction is much higher than in other economic sectors. We can see this in the graph below.
Generally speaking, this is related to the comparatively lower level of development of construction viz. manufacturing, manifesting in the continued widespread use of handtooling and other common labor practices (Finkel, 1997).
However, the existence of this surplus in the value of construction products over and above their price of production is in no way sufficient in itself to explain the existence of a rent independent of differences in land characteristics (Marx, 1993a, p. 894). It is explained, however, by both this and the general rate of profit obtaining for the entire economy. In sectors of the economy that aren’t based so singularly on land, that is, in sectors where the ownership of an element of production (the land itself) isn’t superintended by someone else (a landlord), capital may move between sectors and generally contributes, via competition, to a tendency to distribute “the extra surplus-value of this [any] sphere of production between spheres exploited by capital in due proportion” (Marx, 1993a, p. 896). “If the opposite occurs”, he writes, “i.e. capital comes up against an alien power that it can overcome only partly or not at all, a power which restricts its investment in particular spheres of production, allowing this only under conditions that completely or partially exclude that general equalization of surplus-value to give the average profit, it is clear that in these spheres of production a surplus profit will arise” – which is turned into rent (Ibid.). This alien power, or strange barrier to investment from other capitalists, is how landed property confronts capital and landowner confronts capitalist: “here landed property is the barrier that does not permit any new capital investment on formerly uncultivated or unleased land without levying a toll, i.e. demanding a rent…as a result of the barrier that landed property sets up, the market price must rise to a point at which the land can pay a surplus over the price of production, i.e. a rent” (Ibid.). This forms the lower limit of the rent-price at which land will be released for development, that is, will be sold or leased to a capitalist for investment onto the land; however, “how far the market price rises above the price of production and towards the value, and to what extent, therefore, the surplus-value produced over and above the given average profit…is either transformed into rent or goes into the general equalization of surplus-value that settles the average profit” determines the upper bound (Marx, 1993a, p. 898). Once the permission to develop by a landowner has been given to a capitalist, this alien barrier disappears, and repeated capital investment may occur in a wanton fashion (though the state enforces that most construction, even renovations, may only take place under the auspices of a construction firm). To put it simply, rent accrues to landlords given they occupy a role in capital accumulation and building construction such as they can withdraw their land at any time; landlords of buildings similarly may withhold their buildings and units from tenant rentals, though this has a different economic role.
Central to an understanding of absolute rent is a more developed theory of competition which bears almost zero resemblance to the perfect competition and equilibrium espoused by the marginalist theories. Where they hold that competition is a natural product in which infinite, infinitely tiny firms vie for the consumer surplus, the actual makeup and role of competition in the capitalist economy is rather different from both this and later “imperfect” or “monopoly” theories of competition espoused by Joan Robinson, Paul Sweezy, and the like. Anwar Shaikh has developed this concept to the fullest extent as “real competition” with “turbulent equilibration” (Shaikh, 2016, p. 260). Here, competition is a form of warfare, and “firms within an industry fight to attract customers. Price is their weapon…and profit their supreme deity” (Shaikh, 2016, p. 261). What this means, then, is keeping in mind the fact that “new investment flows more rapidly toward industries with higher rates of profit”(Shaikh, 2008, 2016, p. 264), the alien barrier of landed property represents a significant problem as it does not allow free and unfettered “flows” of investment into land. Competition thus only takes place behind the veil of landed property, that is, once capital has been admitted by a lease to be invested. Thus the construction of buildings is, in a way, a vision of the economy in miniature, or put more rudely, the “industry that capitalism forgot” (LePatner, 2008, p. 16). Marx explains the rationale of the landowner, here speaking to the industrial capitalist:
“If I let you have this condition of production for your use, then you will make your average profit; you will appropriate the normal quantity of unpaid labor. But your production yields an excess of surplus-value, or unpaid labor, above the rate of profit. This excess you will not throw into the common account, as is usual with you capitalists, but I am going to appropriate it myself. It belongs to me. This transaction should suit you, because your capital yields you just the same in this sphere of production as in any other…your capital will also provide a further 20 per cent of additional unpaid labor here. This you will pay over to me and in order to do so, you add 20 per cent unpaid labor to the price of the commodity…” (Marx, 1969, p. 33).
This brings us to a final theoretical point: there is a tendency within the Marxist theory of land rent to treat land as a financial asset or a piece of “fictitious capital”, inaugurated by David Harvey’s Limits to Capital (Harvey, 2018), which enjoyed a wide acceptance throughout the ‘high period’ of rent theorizing (Haila, 1988). This distortion is necessary so Harvey can arrive at a proof for his initial intent – to find a “positive” (for capital) interpretation of the existence of this alien barrier in modern capitalist economies: “could it be, then, that the circulation of capital in search of rent performs an analogous co-ordinating role?” (Harvey, 2018, p. 331). We should read this desire for the positive as an attempt to identify, if not an equilibrium, at least a way in which it can be argued that landed property does not actually labor behind the iron veil of landlordism at all.
He takes umbrage with Marx’s supposed claims that landlords are passive and parasitic “hijackers” of surplus value which would usually accrue to capitalists, and instead makes a clever case that landlords are capitalists which is, unfortunately, completely incorrect. Building off of Marx’s comment that the price at which a land is sold is “nothing but a capitalized rent” (Marx, 1993a, p. 787), he claims that “any stream of revenue (such as an annual rent) can be considered as the interest on some imaginary, fictitious capital…the land becomes a form of fictitious capital, and the land market functions simply as a particular branch – albeit with some special characteristics – of the circulation of interest-bearing capital. Under such conditions the land is treated as a pure financial asset which is bought and sold according to the rent it yields” (Harvey, 2018, p. 356). He does this while claiming a convert’s orthodox zeal to interpreting the original apocrypha, insisting that the above constitutes landownership’s “true capitalistic form” though “Marx does not reach this conclusion directly, although there are various hints scattered in the text” (Harvey, 2018, p. 347). Funnily enough, Marx preempts this exact bastardization of his theory: “some writers…in an effort to transform the capitalist system of production into a system of ‘harmonies’ instead of antitheses…have sought to present ground-rent, the specific economic expression of landed property, as identical with interest. In this way, the opposition between landowners and capitalists would be abolished” (Marx, 1993a, p. 759). This is a problem because in doing the same thing that Marx derides, Harvey falls for the “appearance of a certain sum of money that the landowner draws each year from leasing out a piece of the earth…i.e. can be considered as the interest on an imaginary capital” (Marx, 1993a, p. 760). However, Harvey has actually gotten the relationship backward; this purchase price of land is the capitalization of a possibility of rents, yes, according to the prevailing rate of interest, but crucially, this framing “presupposes the rent itself, whereas the rent cannot be conversely derived and explained from its own capitalization” (Marx, 1993a, p. 761). He has taken the illusory existence of land as a commodity with an endogenous sale price, which it cannot be because it is not produced by labor and thereby has no value, and installed it as the heart of his non-theory of non-rent, having fallen for a “confusion between ground-rent itself and the form of interest that it assumes for the purchase of the land” (Ibid.). Proceeding from this erroneous basis “cannot but lead to the most peculiar and incorrect conclusions” (Ibid.), and therefore we need go no further – other than to state it is the rent, and the value relations that it implies and contains, which is crucial to the discussion, not the sale of land, and that the existence of landed property in the modern capitalist economy does not have to conform precisely to capitalist principles. In fact, Marx notes often that if landed property behaves in the way that Harvey maintains it does, this would spell the end of private property in land altogether. Nice try!
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[1] Those interested in the nitty-gritty of the development of this theory in the 70s and 80s in the US, Britain, and France would do well to consult both (Haila, 1990) and the excellent critique thereof by Derek Kerr (Kerr, 1996). I have elected to not both tracing out the historical drama of this period given that doing so would, in my estimation, only serve to distort the theory and that the hysterics on display by the authors and researchers involved was wholly unproductive of the theory, for the most part. As such, this literature review is selective with particular contributions irrespective of author, chronology, or exactly which response-to-a-comment-to-an-essay from which they originally hail.
[2] Note that this does not change if the landlord and the capitalist are the same person (that is, the industrial capitalist using the waterfall owns the title to the land). Marx: “Nothing is altered if the capitalist owns the waterfall himself. He still draws the surplus profit of $10 not at a capitalist, but as the owner of the waterfall; and for the precise reason that this excess arises not from his capital as such, but rather from his disposal over a natural force that is limited in scope, separable from his capital, and monopolizable…” (Marx, 1993a, p. 785).