It’s a pretty basic fact to note that Marx did not “complete” his systemic inquiry into capitalist political economy. Without getting too into the interminable and grating debates surrounding the ultimate efficacy of what he did leave behind, this issue regularly poses problems for me personally, given that Marx’s comments on ground-rent are scattered and marginal across the entirety of his work, only receiving systemic treatment in Capital Volume 3 and Theories of Surplus Value Volume 2.1 But that’s just how it is.2
Anyway, this post is going to focus on yet another path not traveled by Marx: the question of “profit upon alienation”. This concept appears in the very brief first chapter of Theories of Surplus Value Volume 1, a piece which is usually termed a “critique” of Sir James Steuart3 but in fact accepts the basic premise of an even briefer chapter from Steuart’s Inquiry wherein Steuart divides declares profit as such as “compound profit”, which disaggregates into “positive profit” and “relative profit”.4 Steuart explains:
“Positive profit, implies no loss to any body; it results from an augmentation of labor, industry, or ingenuity, and has the effect of swelling or augmenting the public good…Relative profit, is what implies a loss to somebody; it marks a vibration of the balance of wealth between parties, but implies no addition to the general stock…The compound is easily understood; it is that species of profit and loss which is partly relative, and partly positive. I call it compound, because both kinds may subsist inseparably in the same transaction”.5
What this means, basically, is that the price of a good is actually comprised of “two elements that are completely different from each other; firstly their real value, secondly the profit upon alienation, the profit realized through their transfer to another person, their sale”.6 It should be obvious here that Marx’s work, as well as that of pretty much all classical political economists that came before him, is concerned very much with what Steuart calls “positive profit” – which is of course for Marx obtained only via the extraction of surplus value in the production process. This is basically what Chapter 5, “The Transformation of Money into Capital”, of Capital Volume 1 is all about, where Marx sets about refuting the possibility of profit being generated in exchange by investigating the problem of how profit exists even when all commodities are sold at their value (that is, their “price of production” or what classicals called the “natural price” of a commodity). Critical here is this fundamental idea of equal exchange in capitalist society: “if commodities, or commodities and money, of equal exchange-value, and consequently equivalents, are exchanged, it is plain that no one abstracts more value from circulation than he throws into it. The formation of surplus-value does not take place”.7 This continues even when non-equivalents are exchanged:
“Suppose then that some inexplicable privilege allows the seller to sell his commodities above their value, to sell what is worth 100 for 110, therefore with a nominal price increase of 10 per cent. In this case the seller pockets a surplus-value of 10. But after he has sold he becomes a buyer. A third owner of commodities now comes to him as a seller, and he too, for his part, enjoys the privilege of selling his commodities 10 per cent too dear. Our friend gained 10 as a seller only to lose it as a buyer”.8
Note that the argument for “a universal and nominal price increase of this kind” is that competition between capitals functions to equalize local prices. Ultimately, Marx writes, “the formation of surplus-value, and therefore the transformation of money into capital, can consequently be explained neither by assuming that commodities are sold above their value, nor by assuming they are bought at less than their value” – meaning that “the capitalist class of a given country, taken as a whole, cannot defraud itself”.9 The takeaway then is that surplus value is not realized in the sphere of circulation wherein the famous M-C-M’ circuit continues apace. An individual loss is another’s gain, but within the sphere itself there is no actual profit realized – if we had cross-sectional information available on the particular locality (national or otherwise) of that market, no gains would be registered in the market as a whole. Having established this, Marx is free to make his turn into the “hidden abode of production” a few pages later.
It’s crucial to note also that in closing Chapter 5 Marx refers to “genuine merchants’ capital” and “interest-bearing capital” which historically precede the existence of the “modern primary form of capital” as industrial capital. This is crucial in returning to Steuart. Marx incorporates Steuart’s positive and relative profits with the former as the production of “real value” and the second – profit upon alienation – arising from transfers and sales. Thus, if we say that a given nation has an “aggregate profit”, a certain amount of that total arises via the production of use values in the labor process, and the second through exchanges – at this level, we can say the aggregate profit decomposes into the “general stock” of commodities produced nationally within a given period and then also a murkier profit source viz. the “balance of payments”, which is augmented without a change in the surplus product. In the work of Steuart and Adam Smith,10 this problem of relative profits is assumed to hold in foreign trade, that is, under the aegis of merchant capital, wherein profits arise “by acts simply within the process of circulation, i.e. the two acts of purchase and sale”.11 Marx’s insight is that merchant capital survives, even after the death of the great trading empires, and appears in a modified form incorporated into everyday exchanges in the contemporary appearance of capitalist exchange. He directly calls this “profit upon alienation”. He notes that this type of profit derives from “defrauding and cheating…[and] is thus in all cases a system of plunder”.12
Now we’re getting somewhere, though you’re probably wondering how the hell this applies to rental housing. Check this out.
As I wrote above, Steuart defines relative profit as a “vibration of the balance of wealth between two parties”.13 Marx comments on this approvingly, but without much explication; at issue for him is more along the lines of what Steuart called “positive profit”. This leaves us with a need to explicate relative profit/profit upon alienation in Marx’s stead. Anwar Shaikh writes about this briefly with reference to the transformation problem (God damn I cannot seem to avoid it for long these days), which I will once again be ignoring because I want to talk about something more specific. At issue, however, is the appearance of profit upon alienation domestically, along the lines of what Marx and others identified as a problem of trade between nations. Put simply, we need to look at how a simple transfer of wealth, as in a payment of rent from a tenant to a landlord, give rise to aggregate profit? Consider that this rent payment conforms perfectly to Steuart’s definition of a simple wealth transfer; the tenant loses, say, $2000 every month and the landlord gains the same. The books are clear. So how can profit fall out above that from the money paid to the landlord?
Quite simply, this is because this particular transfer bridges sectors within a national economy. If we conceive of the tenant as a member of what Shaikh calls the “circuit of revenue” (the personal consumption of workers) and the landlord as a denizen of the "circuit of capital", we can register the obvious fact that the rent-capital constitutes a profit when it leaves the circuit of households and enters the circuit of capital.14 These circuits are enforced and maintained by the overall movement of capital within each; the circuit of revenue, consisting of worker's expenditures whereby the entirety of the wage bill is paid out in full in consumption for reproduction over time (that is, capital enters the sector as wages M and exits upon being exchanged for C), and the circuit of capital, in which capital enters as interest, revenues, profits, rents, etc. M and can be entered into the productive, consumption, etc. sectors for further profit.
A rent payment of $2000, from the perspective of simple accounting, represents a diminution of wealth in the form of previously earned wages – which were, in their time, registered as an increase in household wealth. The landlord likewise registers a $2000 increase in wealth. At the national level, however, the books continue to be balanced. This transfer out is nevertheless essential because the maintenance of circuit-sectors allows for different "departments" of the domestic economy to operate like individual trading nations in the heyday of merchant capital, and thus exists as a store of continuously circulating value that even without a middleman (or, if you prefer, with the landlord functioning as a middleman existing solely to conduct transfers from one circuit of capital to another) exists as profit for nothing. Taken as a whole, this means that aggregate profit deviates from aggregate surplus value produced in a given period, and that rent payments make up a certain percentage of that remainder.15
This may seem like a lot of build up to an extremely simple point, and it is. The crucial insight from this perspective, however, is that profit on alienation, whether in the form of rent or otherwise, is a purely distributive issue, constituting of nothing other than the siphoning of the wage-wealth of a tenant, who does not own a commodity necessary for reproduction, into the coffers of a landlord, who does own said commodity. But no physical production has taken place, no surplus product has been produced, and no surplus value generated. Furthermore, this should be taken not as an indicator that profits may arise in the course of rent payments being made (they do) but that the landlord operates on an atavistic principle of plunder in order to make their profit, with obvious provenance in imperialistic expansion in the age of merchant capital. Thus the landlord and the rent relation are doubly atavistic; in one sense, they are the personification of a subsumed but surviving system of land ownership from previous modes of production, and on the other they continue to function and replenish themselves in accordance with the profit strategems of circuit of capital that held prior to the advent of true industrial production. The contradiction deepens when one considers that this extracted profit upon alienation is available instantly as capital just like any other, able to be invested and transferred as necessary for the accrual of further wealth. Thus a tenant is not an inhabitant of a house, but to the landlord, a consistent source of capital advanced for the expansion of their own wealth.
I would like to note also that in the course of researching this post I realized that Fred Moseley’s Marx's Economic Manuscript of 1864-1865, which purports to be “truer” to Marx’s original intention and plan for Capital Volume 3, completely leaves out all the material on merchant capital that appears in the published form assembled by Engels! What the fuck!
Henryk Grossman, in Works Volume 1, writes: “Consequently, when dealing with difficulties that arise for the problematic of the individual partial areas and partial theories of Marx’s system, the highest principle must be that the difficulties are to be overcome not by means of mechanical, superficial additions and completions but within the given material, in accordance with the logic of the system as a whole. This means nothing more than that one must hold to the idea that Marxist economics, as it has been bequeathed to us, is not a ‘fragment’ or a ‘torso’, but constitutes a finished, i.e. complete, system”. So let us see how far that goes. (See Grossman, Henryk. Works Volume 1. Leiden ; Boston: Brill, 2018, p 208.)
To be certain, Marx spends a good amount of his Contribution shitting on Steuart’s theory of money. By the time of TSV 1 however, he is much more genial to Steuart, calling him “the rational expression of the Monetary and Mercantile systems”, which all things considered is basically a compliment from Marx when a bourgeois economist is the subject.
Steuart, Sir James. An Inquiry Into the Principles of Political Oeconomy: Being an Essay on the Science of Domestic Policy in Free Nations. In Which Are Particularly Considered Population, Agriculture, ... Public Credit, and Taxes. By Sir James Steuart, ... In Three Volumes. ... James Williams; and Richard Moncrieffe, 1770. Specifically looking at Chapter VIII of Book 2, “On what is called Expense, Profit, and Loss”.
Ibid., p 206.
Marx, Karl. Theories of Surplus Value: Volume 1. Pattern Books, 2020, p 2-3.
Marx, Karl, and Ernest Mandel. Capital: Volume 1: A Critique of Political Economy. Translated by Ben Fowkes. London ; New York, N.Y: Penguin Classics, 1992, p 262.
Ibid., p 263.
Ibid., p 266.
For more on the relationship between the two see Meacci, Ferdinando. “The Distinction between Relative and Positive Profit: Sir James Steuart after Adam Smith and the Classics.” The European Journal of the History of Economic Thought 27 (December 17, 2019): 1–20. https://doi.org/10.1080/09672567.2019.1651366.
Marx, Karl, and Ernest Mandel. Capital: A Critique of Political Economy, Vol. 3. Translated by David Fernbach. 3rd Revised ed. edition. New York, N.Y., U.S.A: Penguin Classics, 1993, p 447.
Ibid., p 448.
Steuart, Inquiry, p 206.
Shaikh, Anwar. Capitalism: Competition, Conflict, Crises. Oxford University Press, 2016, p 209.
I would be remiss in not noting that, of course, capitalists do exist as consumers as well – this is an essential point Marx makes in Chapter 5 of Volume 1. However, the role they play in circulating capital in consumption is different given they also make transfers to the production capital circuit directly for inputs, etc. It’s a “split market”, lets say.