Part 3: On the validity of applying agricultural rent categories to modern landed property
some clarification
Ok. After yesterday’s little sojourn into a critique of housing supply’s effect on rent we’re back to basics.
It’s relatively commonplace to note that Marx’s rent categories were almost entirely developed as a response to Ricardo’s (and somewhat Malthus’) theories of agricultural rent. This has lead to critiques of basically zero theoretical rigor over and above making insipid claims that a theory applied to agriculture can have no validity outside of that specific context. However, Marx was not talking about agriculture at all, at least when it comes to absolute rent, but only applying the theory to agriculture. The theory of absolute rent has much broader application, including to house rent (not just ground rent).
Agricultural rent, for what it’s worth, may refer to two things: on one hand, there is the rent paid by a tenant farmer to the owner of the land farmed which represents a capitalist “version” or superannuation of the much older form of land rent. There is also the particular way in which agricultural output commands a certain price in the market incommensurate with the labor time put into it. This increased price was recorded as rent and attracted the vast majority of his time as it represented a major test for Marx’s updates of the labor theory of value – in fact, this specific problem was a notorious issue for Ricardo to solve with his own form of the theory. So this leaves modern “urban” rent theory with not too terribly much to go on if we’re turning away from Harvey, other than a few French urban sociologists (early Castells, Lamarche, and Lojkine particularly) with respect to constructing a modern rent theory that focuses on the output of commodities in the construction process.
Marx takes pains to clarify that agricultural rent is paid not due to any “magic powers of the soil” (that is, an inherent value to the land’s fertility") but is deducted from the surplus-value gained by the tenant farmer in the process of crop production. Therefore, this rent payment was ultimately generated by labor time expended in the production process. As Marx writes in his long critique of “Herr Robertus” which takes up the majority of his Theories of Surplus Value Volume 2:
"It is quite simply the private ownership of land, mines, water, etc. by certain people, which enables them to snatch, intercept and seize the excess surplus-value over and above profit (average profit, the rate of profit determined by the general rate of profit) contained in the commodities of these particular spheres of production, these particular fields of capital investment, and so to prevent it from entering into the general process by which the general rate of profit is formed”.
Though most rent theory focuses on private ownership to the point of monopolization of land in the first part of this quote, and though this is no doubt crucial, the question of the rate of profit in a sector as it relates to the general rate of profit is often left untouched. This is also, crucially, the lynchpin which allows theoretical concepts developed at a much lower level of urbanization as a social reality to still hold in the present day. Competition within an industry disequalizes profit rates in favor of equalizing selling prices, meaning that prices must tend together even if the various firms producing in-sector have wildly different levels of profitability due to their production process, size, etc. But competition between sectors, as is the concern here, tends to equalize profit rates instead by promoting entry and exit of capitals in response to profit rate differentials (paraphrased from Shaikh here). But this differential is not an average rate of profit – it is the profit of one set of capitals who by virtue of having the “best generally reproducible condition of production” in the industry become “regulating conditions of production”.
Put simply, it is only sectors which have a landed product that reap excess surplus-values over and above the average, general rate of profit, which are called rents. This is crucial. “Fresh money capital, borrowed or garnered as profit, always looks over the available list of avatars [of investment] before making its choice”. This enticement creates an attraction for investment in landed sectors like construction despite its difficulties (that is, the need for use of landlords and contractors and other intermediaries which the money-capitalist encounters as temporary enemies of his crusade to realize vaster and vaster profits in the war of competition). In the face of the supposed smooth equilibrium between sectors generally assumed in neoclassical economic theory, competition becomes particularly brutal at the gate of the landed sectors. As Shaikh writes in Capitalism, this real competition is “as different from so-called perfect competition as war is from ballet”.
Marx notes that “agricultural rent or rent from mines (there are rents which are altogether only explicable by monopoly conditions, for instance the water rent in Lombardy, and in parts of Asia, also house rent in so far as it represents rent from landed property)” all count as sectors which enjoy rent as a form of profit due to their status on the land itself, and thus have a strange relationship with other sectors. Monopoly conditions represent the first barrier to the free flow of capital onto the land, as I’ve mentioned before. However! There is, of course, the phenomenon that Marx notes all the way back in the 1844 Manuscripts:
“…competition has the further consequence that a large part of landed property falls into the hands of the capitalists and that capitalists thus become simultaneously landowners, just as the smaller landowners are on the whole already nothing more than capitalists. Similarly, a section of large landowners become at the same time industrialists.
The final consequence is thus the abolition of the distinction between capitalist and landowner, so that there remain altogether only two classes of the population — the working class and the class of capitalists. This huckstering with landed property, the transformation of landed property into a commodity, constitutes the final overthrow of the old and the final establishment of the money aristocracy”.
This may make it seem irrelevant that the landed commodity operates sectorally in accordance with different rules – after all, if landed property is a commodity, but is owned by capitalists as landlords and not simply a discrete class of landlords, is there any salience to say that these personifications of capital are necessarily limited in their entrance to landed sectors of the economy if their capital may flow freely between them? Well, of course – just because their holdings can and do straddle sectors with ease, does not mean that entry and exit into a sector is easy. For manufacturing sectors the question of entry is one of investment in the necessary fixed capital in order to compete at the technological level of production as established by the regulating capital in the sector. For the landed sectors, the question of entry is the accumulation of units of sufficient rental viability relative to that enjoyed by the regulating conditions of production within the landed sector – not of construction, but of property ownership. That is, the creation of viable firm activity in-sector entirely depends on a favorable purchase of the product of the construction sector, or, on the direct purchase of existing structures from firms already in the sector.
The original owner of land must be persuaded to part with his commodity in order to allow another capitalist to enter the land market. If that capitalist does successfully gain access, he is then left with additional investments required in order to bring his investment up to relative profitability. This is less complex than it sounds: if capitalist A buys land X within an urban area, and does not build upon it, his investment is effectively useless other than a spatial repository or representation of the certain amount of capital exchanged in its purchase. It may appreciate or depreciate in price given the vagaries of that given housing market’s fortunes or the land’s desirability for others, but it may exchange hands hundreds of times and never truly rise to the level of profit within the landed sector that is enjoyed by other capitalists who own improved land, that is, with fixed capital structures like housing or other buildings, built upon it. If a capitalist buys land, they may make money (or lose money!) from other capitalists in exchanging that land. If they build upon it, however, that investment unlocks a range of other possibilities of exploitation. They may now wring profits from tenants in the form of house rents.
These powers do not come without cost. They are only gained by treating with the construction industry, which is the name we give to the collection of firms engaged in the establishment of fixed capital investments upon the land. The construction sector enjoys its place of prominence as an entity which translates variable and mobile capital (labor and money) into fixed structures via a proprietary production process. This means they are a landed industry, quite literally, in the same way that agriculture creates of land a commodity. Whereas agriculture applies capital and labor to increase yields, construction applies capital and labor to change the form of yields for the owner. There is an immense amount of labor time that goes into the production of the final building which may sit on previously undeveloped land.
If we assume a reality where commodities are sold at prices which reflect their values, we would end up with rents being paid to a building owner that are some segment of the actual building’s value. If $100 of labor time was needed to construct a four-unit residential building, and this building was “sold” to the client by the contracting firm, who then rented each unit for $25/year, the client (now in the role of landlord-capitalist) would make their money back on their investment in a single year. However, the building would still be more than viable to continue renting. Having been paid for and now treated as a natural feature of the land that it was built upon, the building is obdurate, lasting for a certain number of yearly lease cycles. Say the building stands for 10 years. All rentals after the first year would constitute surplus value made above the existing investment.
However, that initial investment – the building itself – does not just passively and idly generate capital for its owner. It represents a significant investment of fixed capital – the curious output of a construction sector which has a low ratio of capital to labor. The combination of this fact plus the fact that variable labor is extremely low within the rental ‘market sphere’ (consisting, essentially, of the landlord-capitalist and any associated staff) means that profit rates are, considered purely in terms of the actual value of the residential building, always falling. They may be buttressed by new rounds of construction via maintenance or expansion, but the profits of these endeavors go to the contractor and thus do not actually make much difference for the landlord-capitalist owner. He is then stuck, but don’t feel too bad! All the while and throughout the years, the landlord-capitalist continues to enjoy rents gained from tenancy, but this will not last forever. The only way out is to sell to another capital in a favorable market to free himself of his fixed investment, to expand to bring in other fixed investments in order to offset temporary losses within the first, or, finally, to raze the structure and begin anew.