I.5. The Capitalist Character of Modern Agriculture

To raise agriculture from the level of the feudal era to its modern height, and to let it share in the technical and economic progress that goes on without interruption, money was and is necessary — a great deal of money. That needs no proof and scarcely an illustration. It need only be remarked that in England over 100 million marks were spent on drainage alone in 1835–1842, and over 50 million in 1846–1855. With the 50 million, 1,365,000 acres were drained, but a further 21,525,000 acres still needed draining.

Without money modern agricultural enterprise is impossible, or, what amounts to the same thing, without capital; for in the present mode of production every sum of money that does not serve the purposes of personal consumption can become capital, value that breeds surplus-value, and as a rule it does.

Modern agricultural enterprise is therefore capitalist enterprise. It bears the characteristic marks of the capitalist mode of production, which in its case, however, take on peculiar forms. To make these comprehensible we must permit ourselves here a short digression into the field of economic abstractions and briefly sketch our theoretical standpoint, that of Marx’s theories of value, surplus-value, profit and ground-rent. We shall of course content ourselves with indications, and refer those of our readers who have not yet made the acquaintance of the three volumes of Marx’s Capital to these, if they wish to go more deeply into the main subject of the present chapter.

When we consider modern agriculture, it shows us two fundamental facts: private property in land and the commodity character of agricultural products. The first of these two facts we have already come to know in its origin; it is the second, with its consequences, that concerns us here. A commodity is a product of human labour that was not made in order to be consumed by the producer himself (or to be handed over for consumption to others, members of his family, his lord, etc., without compensation), but one that the producer does not need and that is to be handed over to others in exchange for products he does need.

The ratio in which definite quantities of one commodity are exchanged for quantities of other commodities is at first very much determined by chance. But the more commodity production develops, the more regularly exchange is repeated, the less this ratio becomes a matter of chance, the more a certain regularity in the ratio of exchange comes to light; every commodity acquires an exchange-value that is determined under determinate conditions. With still further development exchange becomes sale, that is, a particular commodity becomes the money-commodity, the commodity that everyone can use, that everyone is glad to take in exchange, and in which all other commodities measure their values. The definite quantity of the money-commodity — gold or silver — that is given for a definite commodity is called its price.

The value of commodities comes to light only as a tendency, as a striving governed by law that dominates the process of exchange or of sale. The product of this process is the actual ratio of exchange, or the price actually obtained, at any given time. The law and its result are of course two different things. The investigator of natural or social processes must isolate them if he wants to discover the laws by which they are governed; he must consider each process by itself, separated from disturbing secondary circumstances. Only in this way can he arrive at an understanding of the laws at work beneath the phenomena; once these are known, one easily comes to understand the phenomena that lie on the surface. By the reverse path one comprehends neither the one nor the other. That is as clear as day and has been said countless times already, and yet it is overlooked again and again, especially in the theory of value.

What is it, then, that determines exchange-value, the definite ratio, governed by law, in which two commodities exchange? Exchange springs from the division of labour. Commodity production is that form of production in which mutually independent workers in different branches of labour work for one another. In a socialist society they would work for one another directly; as producers independent of one another they can work for one another only by exchanging the products of their labour with one another. But they are free and equal — only between such is a real exchange of commodities possible; where one party is dependent on the other, one can speak of extortion or robbery, but not of exchange. A free man, however, does not want to work for a stranger for nothing; he does not want to give up more labour than he receives. Thus we see the tendency arise for products of equal expenditure of labour to be equated with one another in exchange, for the expenditure of labour necessary on average to make a commodity to determine its value. But whether the producer realises the value on the commodity market, whether in the price he actually receives at least the payment for his labour, depends on a series of circumstances that can all be summed up under the heading of demand and supply.

The theory that the value of a commodity is determined by the labour socially necessary to produce it is, it is true, most vigorously disputed by modern university science. But if one looks more closely, all its objections arise from its confusing the value of commodities on the one side with use-value, on the other with price. All the academic theories of value come down to setting up, besides the expenditure of labour, the usefulness of the product and the demand for it as elements of value.

It goes without saying that every product must be useful, must correspond to a need (real or imagined), if it is to become a commodity and acquire value. Use-value is the precondition of the value of commodities, but it does not determine the magnitude of the latter. The presupposition of every exchange is that the two commodities are of different kinds, otherwise the exchange would have no purpose. Between use-values of different kinds, however, a purely numerical comparison such as the ratio of exchange represents is not possible. If I say that an ell of linen is worth ten times as much as a pound of iron, it would be absurd to assert that this comes about because an ell of linen satisfies ten times as many needs or is ten times more useful than a pound of iron. The usefulness of the one commodity and of the other are quite different concepts that cannot be measured against each other.

Between different pieces of the same kind of commodity one can, it is true, establish a higher or lower degree of use-value: a durable pair of boots has greater use-value than a similar, less durable pair, a glass of Rüdesheimer greater than a glass of Grünberger. People will gladly pay more for the greater use-value than for the lesser: so use-value is after all an element of the value of commodities. So it might almost seem. But here the question arises: if greater use-value creates higher value, why does not every producer of a kind of commodity produce only articles of better quality; why does not every shoemaker make only shoes of the most solid kind, why does not every vine-grower grow first-class wines? The answer is very simple. In the case of shoes the better quality — if we disregard individual differences between workers and differences in raw material, tools and the like, the taking of which into account would change nothing in the result — is the consequence of more solid work, that is, of a greater expenditure of labour. And this greater expenditure of labour, not the higher use-value, determines the higher value of the better quality. It is well known that the dearest goods are said to be the cheapest, that is, their use-value exceeds that of the lower qualities in a far higher degree than their value exceeds that of the latter. A pair of boots at 12 marks may last twice as long as one at 10 marks.

The higher price of Johannisberger or Rüdesheimer, however, comes about because wines of this kind simply cannot be grown everywhere. Here the law of value loses its validity altogether, because here we have to do with monopoly. The law of value, however, presupposes free competition.

Where, within the same kind of commodity, differences of quality bring about differences of price, these can always be traced back either to differences in the expenditure of labour or to relations of monopoly. It would indeed be folly to suppose that, where neither of these factors was at work, everyone endowed with average skill — which is, after all, presupposed — would not produce only the best quality of his kind of commodity.

It is much the same with greater or lesser demand as with greater or lesser usefulness. The change of demand and supply can indeed explain why the price — not the value — of the same commodity stands high today and low tomorrow, but it can never explain why one kind of commodity stands permanently so much higher in price than another, why, for example, for many centuries, in spite of many fluctuations of price, a pound of gold was on average always about thirteen times as dear as a pound of silver. That can be explained only by the fact that for several centuries the conditions of production of these two metals remained the same. It would be ridiculous to try to suppose that the demand for gold was uninterruptedly thirteen times as great as that for silver.

One is positively ashamed to have to repeat all these explanations here for the nth time, but they prove necessary again and again whenever one comes to speak of the theory of value, because its opponents never tire of bringing forward the same quid pro quos against it again and again. Thus, for example, Professor Lujo Brentano, in his latest work on Agrarpolitik (Part 1: Theoretische Einleitung in die Agrarpolitik), comes to speak of the doctrine of ground-rent and thereby also of its presupposition, the theory of value. There we read:

“Ricardo and his school spoke of natural value, and described as such the sum of the costs expended on the production of a good. In the Social Democratic development of this doctrine, the sum of social labour-time necessary for the production of a good is described as natural value.”

What Brentano understands by “social labour-time” we do not know. “Socially necessary labour-time” is certainly something else. Brentano continues:

“Both theories of value — Ricardo’s and Marx’s — are today regarded in science as superseded. Hermann already demonstrated their untenability when he showed that costs form only one among many grounds determining price; that besides them the urgency of the need, serviceability, ability to pay, the possibility of procuring the good elsewhere, the seller’s need to sell, the exchange-value of the means of payment and other advantages offered by the buyer, as well as the opportunity of selling elsewhere, play a part in the determination of price.” (P. 84.)

So: Marx’s theory of value is “superseded in science” because — price is not determined by the expenditure of labour alone.

Ricardo, and Adam Smith before him, spoke of “natural price”. Brentano makes them, and even Marx, speak of “natural value”! Thus in these few lines price and value whirl about in a motley jumble!

But if one disregards the factors that determine the fluctuations of prices, then even with Brentano only one determining ground is left to us, the expenditure of labour, or, as Brentano says by way of “improvement”, the costs of production. This improvement, however, is of a highly doubtful nature.

The costs of production already presuppose what they are supposed to explain, value. By what are the costs of production determined? Their sum is a sum of values laid out. So first value is explained by the costs of production, and then these by value! Thus we are sent from Pontius to Pilate!

Nevertheless the proposition that the value of a commodity is determined by its costs of production is not altogether senseless; but university economics does not tell us the circumstances under which it acquires a sense. To make these circumstances clear we must set out the difference between simple and capitalist commodity production.

Simple commodity production is the original form of this kind of production. It is characterised by the fact that the producers not only confront one another as free and equal, but are also in possession of their means of production.

Like none of the great epochs of economic development, simple commodity production too never reigned in complete purity, but mixed with other economic forms, with natural economy, with feudal economy, with the monopoly economy of the guilds. Thus under it the law of value too broke through only in part, just so far as, within the given limits, a regular production for the market by producers freely competing with one another developed.

At a certain high point of development simple commodity production is replaced by capitalist commodity production, that is, the worker ceases to be the owner of his means of production. The capitalist now confronts the worker, who has become propertyless, as the owner of the means of production; the worker can no longer work directly for the consumer, he must work for the capitalist entrepreneur, to whom he sells his labour-power; he becomes a wage-labourer.

Only under this mode of production does commodity production become the general, or at least the dominant, form of production; natural economy rapidly disappears, feudal exploitation and the monopolies of the guilds become impossible, freedom and equality of the producers the general rule. But precisely this mode of production, which first creates the conditions under which the law of value comes to general validity, brings into being between value and market price an intermediate link that obscures the law of value and modifies its working. This intermediate link is the costs of production, that is, the sum of the money outlays required to make a commodity.

Under simple commodity production the determination of the prices of finished commodities by their costs of production makes no sense. Let us take the simplest example, a primitive peasant weaver who produces his raw material himself and also makes his loom himself. He does not have to make the slightest money outlay in his production; his product costs him nothing whatever but labour.

The fixing of price by the costs of production does not appear so absurd where, in consequence of the division of labour, the producer buys his means of production. As with the primitive weaver, the value of the linen of the handicraft weaver is determined by the labour-time socially necessary to make it; but this no longer comes to light so clearly. For he no longer produces the yarn himself, nor the loom either; he buys them. Their value forms his costs of production, and these enter into the value of the product: the value of the yarn worked up entirely, that of the loom in proportion to the wear and tear that took place in producing the linen. But these costs of production do not form the whole value of the linen; that is found only when one adds to the costs of production the value created by the labour of the linen-weaver.

But the matter takes quite another shape under capitalist commodity production. The owner of the means of production and the worker have become two different persons. If the capitalist wants to have something produced, he must buy not merely raw materials and tools, like our linen-weaver in the last example, but also the labour-power of the worker himself. For the capitalist, then, all the elements of production do indeed resolve themselves into money outlays, into costs, but only for him. The production of commodities costs him not labour but money; for him the costs of production, the outlay of money, become what determines price, not the expenditure of labour; but one must be blind to the difference between simple and capitalist commodity production to declare the determination of prices by the costs of production a general law of commodity production, and thereby to “improve” the labour theory of value.

The costs of production as the capitalist reckons them in determining price are not, however, exhausted by the actual costs of production. If the price of the commodity were equal to the sum of money the capitalist had laid out in producing it, he would gain nothing by selling it. But gain is the motive of capitalist production. If the investment of his money in an enterprise brought the capitalist no gain, it would surely be more advantageous for him to use it for his personal consumption. It is precisely gain, profit, that makes a sum of money into capital. Every sum of money that is applied in such a way that it yields profit is capital.

The capitalist therefore puts a mark-up on the sum of his outlays of production; he believes he has produced at a loss if he does not obtain at least the profit customary in the country. The sum of his outlays of production plus the customary profit — these are for him the costs of production; by them he measures the price he must obtain in order to cover his costs.

This is a fact that lies on the surface of capitalist practice and is therefore long familiar.

Adam Smith already distinguished between labour-value, which in simple commodity production alone underlies the fluctuating market prices, and the modification of value in the capitalist mode of production by the costs of production, which form the natural price (not value, as Brentano states), that is, what Marx calls the price of production. The advance of present-day university economics over this “antiquated” economist consists in its throwing together not merely simple commodity production and capitalist production, but also value, natural price and market price, and declaring that the classical theory of value is superseded because “natural value” does not explain the fluctuations of prices.

“In that early and rude state of society”, says Smith in the sixth chapter of the first book of his Wealth of Nations, “which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. …

“As soon as stock has accumulated in the hands of particular persons, some of them will naturally employ it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work, or by what their labour adds to the value of the materials.”

Here the difference between simple and capitalist commodity production is sharply brought out. In the seventh chapter Smith then remarks that in every society and every country there is an average rate both of wages and of profit, as well as of ground-rent — of which last we shall speak more soon and which we therefore leave aside here. These average rates may be called their natural rates.

“When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price.”

The “natural” rate of profit, like value, exists only as a tendency; as prices gravitate towards value, so profits gravitate towards the “natural” or average profit.

But by what is the level of this “natural” or, as it is also called, “customary” profit determined? On this Adam Smith can tell us as little as Ricardo or any of the other bourgeois economists; what they bring forward on it — the greater or smaller risk, the higher or lower wages and the like — explains only the deviations of actual profit from average profit, just as demand and supply explain only the deviations of market price from value, or from the price of production; they do not explain the level of average profit at any given time; they explain well enough why profit amounts to 19 per cent here and 21 per cent there, and not 20 per cent like the average, but they do not explain why the average amounts to 20 per cent and not, say, 200 or 2000.

That explanation was first given by Marx with his theory of surplus-value.

The fact of surplus-value itself Marx did not, it is true, discover. Nor did he by any means need to borrow it from Thompson, for he could already find it recorded in old Adam Smith, who says in the sixth chapter of his Wealth of Nations (Book I), already mentioned:

“The value which the workmen add to the materials, therefore, resolves itself in this case (i.e. in capitalist production) into two parts, of which the one pays their wages, the other the profits of their employer upon the whole stock of materials and wages which he advanced.”

Here surplus-value is already recognised and established, and Thompson added nothing further to this insight; he merely derived from the economic fact a juridical demand of doubtful quality. For the explanation of economic processes he knew no more what to do with surplus-value than Adam Smith or any other of the pre-Marxist economists. Surplus-value served him to condemn profit, not to explain it. That was first achieved by Marx; he was the first to show in detail and systematically how surplus-value arises and functions, and all the discoveries of Anton Menger and his like change nothing in that.

Surplus-value springs from the fact that human labour-power, from a certain level of technical development onwards, is able to produce a surplus over the amount of products necessary for its maintenance and reproduction. Human labour has delivered such a surplus, a surplus-product, since time immemorial, and the whole progress of civilisation rests on the gradual increase of this surplus through the perfecting of technique.

Under simple commodity production the surplus-product takes the form of commodities; it acquires a value, which, however, cannot yet be called surplus-value, since at this stage human labour-power does indeed create values but has as yet no value itself, because it is not yet a commodity.

Here the proceeds of the surplus-product fall to the worker; he can use them for a more comfortable life for his family, for enjoyments of a coarser or a finer kind, for laying by a sum against hard times or even a hoard, or for improving his means of production. But he must also give up larger or smaller parts of the proceeds of the surplus-product, pay dues to the prince, the commune, the lord, and sometimes pay usurious interest if he has fallen into need. It can also happen, however, that the value of the surplus-product is withheld from him from the outset, wholly or in part. Any distress of the free worker is turned to account not only by the usurer but, in a certain state of the market, by the merchant too, who is often identical with the usurer. Under simple commodity production the merchant’s profit can arise not merely from his selling the commodities he deals in above their value, but also from his buying them below their value. The greater the competition on the commodity market and the more depressed the position of the producers, the more the latter source of profit will come into play. Only one more step beyond this stage is needed, and we are in the domain of the capitalist mode of production.

It is an obvious step for the merchant, instead of squeezing the free producer’s product out of him below its value, to prefer to exploit the worker’s distress by making him a producer in capitalist service, a wage-labourer, who produces commodities not in his own enterprise but in the capitalist’s, and who lives not by the sale of his products but by the sale of his labour-power.

Labour-power now becomes a commodity and as such acquires a value, equal to the value of the means of subsistence necessary for its maintenance and reproduction. The surplus of value that the worker produces over and above the value of his own labour-power now becomes surplus-value. Where the price of labour-power, the wage, corresponds to its value, the surplus-value falls entirely to the capitalist.

To the industrial capitalist falls the whole product created by his wage-labourer. The value of this product is equal to the value of the means of production worked up — raw materials, wear and tear of machinery and buildings and the like — plus the value of the worker’s labour-power, popularly speaking his wage, plus the surplus-value. It is the last that forms the profit. But the transformation of surplus-value into profit is even less a simple operation than the transformation of value into price.

What the capitalist introduces into the process of production is not his labour but his capital. Profit appears to him not as the product of the surplus-labour of his workers but as the product of his capital. He reckons the rate of his profit not by the quantity of labour he employs but by the quantity of capital he employs. From this it follows, however, that if several enterprises obtain the same rate of surplus-value, they must yield different rates of profit if the quantities of capital they employ are different.

We shall make this clear by an example, which we shall frame as simply as possible. We therefore assume three enterprises in which not only the rate of surplus-value, that is, the exploitation of the workers, is the same, but also the turnover of capital. The capitalist reckons the rate of profit by the ratio of the mass of profit obtained by his enterprise in a year to the quantity of capital advanced for it during that year. If two enterprises with the same rate of surplus-value and the same quantity of capital have different turnover times of their capital, their rate of profit will also be different.

If a capital of 100,000 marks in each case obtains a surplus-value of 10,000 marks with each turnover, then if the capital turns over once a year the ratio between the annual surplus-value and the capital will be 1 : 10; if it turns over ten times, 10 : 10; in the first case the rate of profit would amount to 10 per cent, in the second to 100 per cent.

We leave aside here this difference, which would complicate the problem too much.

Let us take, then, three enterprises with the same rate of surplus-value, the same turnover time of capital and the same number of workers. What differs in the three enterprises is the quantity of capital required to employ the same number of workers. It should be remarked here that Marx distinguishes two kinds of capital, variable and constant. The variable is that laid out in wages, whose employment creates surplus-value. This part of capital grows in the process of production; it is alterable or variable. The part of capital, on the other hand, that is laid out in buildings, machines, raw materials, etc., that is, in means of production, does not alter the magnitude of its value in the course of the process of production; its value reappears unaltered in the product created from it; it is therefore constant. For our example, then, we start from the assumption that in the three enterprises equal quantities of variable capital, but unequal quantities of constant capital, are employed. In the first enterprise an unusually small amount of constant capital is employed; let it be, say, a carpenter’s yard in which cheap timber is worked with simple tools, without buildings or machines. In the second enterprise an unusually large amount of constant capital is employed; here we may perhaps think of a chemical works that has extremely extensive and solid buildings and numerous machines, but employs relatively few workers. And finally let the third enterprise be one in which the general average of variable and constant capital is employed, let us say a furniture factory.

We must make one more assumption in order to make our example as simple as possible: the assumption that the whole constant capital is used up in the course of a year and reappears in the value of the product. It is clear that in reality this scarcely ever happens in a capitalist enterprise. Buildings and machines do not wear out so quickly; if a machine stays in operation for, say, ten years, it gives up only 1/10 of its value a year to the products created with it. However, if we did not make our assumption, we should complicate our example unnecessarily without changing anything in the final result. In each of the three enterprises 100 workers are employed at a wage whose annual sum is 1,000 marks a head. The rate of surplus-value in each amounts to 100 per cent, the mass of surplus-value to 100,000 marks. But let the constant capital amount to 100,000 marks in the carpenter’s yard A, to 300,000 marks in the furniture factory B, and to 500,000 marks in the chemical works C. Let the capital turn over once a year everywhere.

Thus we have

If the commodities were sold at their value, A would obtain a profit of 50 per cent, B of 25 per cent, C of 16.6 per cent. The supreme commandment of the capitalist mode of production, equality — not of men, but of profits — would be most grossly violated. Capital would shun the factories of branch C like the plague, and would turn in droves to the enterprises of branch A. In C the supply of products would soon fall, and with it prices would rise above the level of value; the reverse would occur in A; in the end prices in A and C would have reached a level at which they yield the same rate of profit as the average capital B. This rate of profit is the average rate of profit; it determines the price of production.

We then have

The prices of production determined by the “costs of production” thus deviate somewhat from the values of the products, but the law of value is not thereby abolished, only modified. It remains the regulating element at work behind the prices of production and retains absolute validity for the totality of commodities and for the total mass of surplus-value, whereby it supplies the solid basis for prices as well as for the rate of profit, which otherwise floats unsupported in the air.

University economics looks down contemptuously on Marx’s theory of value, long since superseded by “science” — which does not, to be sure, prevent the same economics from still thinking it necessary, year in, year out, to produce a series of fat books and treatises for the renewed supersession of the long-superseded theory, writings whose value perhaps does not always stand in proportion to the labour expended in producing them: but what else has it to put forward to explain the level of average profit than the little word “customary”?

With the explanation of the “customary”, “bourgeois” gain we have at last arrived at the threshold of ground-rent.

One of its sources springs from the circumstance that the capitalist can make, besides the “customary”, “bourgeois” gain, a surplus profit too. Of the various kinds of surplus profit only one interests us here, one that lies in the domain of production and arises from an industrial entrepreneur’s producing, thanks to particularly advantageous means of production that are at his disposal alone, at a cost-price lower than that which the generally prevailing conditions of production as a rule make necessary.

An example will make the nature of this surplus profit clear to us. We make the same simplifications as in the example above.

Let us take, say, two shoe factories in a town. Let the first, the firm of Müller, produce with the machines in general use, and let the second, Schulze, have succeeded in acquiring exceptionally good machines. With a capital outlay of 320,000 marks Müller produces 40,000 pairs of shoes a year. The average rate of profit amounts to 25 per cent. Müller must therefore set the price of the 40,000 pairs of shoes, which cost him 320,000 marks, high enough to make a profit of 80,000 marks. Only if he pockets this has he, by capitalist notions, produced without loss. For the firm of Müller, then, the price of production of the 40,000 pairs of shoes comes to 400,000 marks, that of each single pair to 10 marks.

Schulze, on the other hand, thanks to his excellent machines, produces 45,000 pairs of shoes with an outlay of 320,000 marks. His actual, individual price of production for a pair of shoes amounts not to 10 but only to 8.88 marks. But he can sell them at the general price of production, like his competitor, that is, at 10 marks a pair. He accordingly receives 450,000 marks for his shoes; besides his bourgeois gain of 80,000 marks he pockets the nice little sum of 50,000 marks as surplus profit.

Let us now transfer this case to agriculture. Instead of the two factories we take two areas of arable (of, say, 20 hectares each) of unequal fertility, cultivated by capitalist entrepreneurs. Let the one produce 400 hundredweight of wheat with an outlay of 3,200 marks, and the other 450 hundredweight with the same outlay. The owner of the first area of arable, if he wants to pocket the customary profit, will now have to add 2 marks to the cost-price of a hundredweight of wheat of 8 marks, at an average rate of profit of 25 per cent; the price of production will come to 10 marks, the farmer’s profit to 800 marks. The second farmer also sells his wheat at 10 marks the hundredweight, takes 4,500 marks for it, and so obtains, besides the average profit, a surplus profit of 500 marks as well.

This case is apparently quite the same as the one taken from industry; and yet it is fundamentally different from it. The kind of surplus profit in agriculture considered here is subject to quite peculiar laws, and therefore also forms a special economic category: ground-rent.

Land — and to it must be reckoned also all the productive forces that “present themselves as appurtenances of the land” (Marx), for example the power of waterfalls and of running waters in general — is a means of production of a quite peculiar kind. It cannot be increased at will, it by no means possesses the same properties everywhere, and the particular properties of a particular piece of land are attached to it and cannot be transferred at will. Machines and tools, on the other hand, can be increased and transferred at will, and can all be of the same quality.

If, therefore, an industrial capitalist obtains a surplus profit through exceptionally good conditions of production, he owes this to exceptional personal qualities or circumstances, to a particularly lucky chance, to particular experience, intelligence or energy, or to the possession of an exceptionally large capital. But his surplus profit will soon make other capitalists greedy for the same gains; they will seek to set up enterprises with the same conditions of production, and so sooner or later the exceptionally advantageous conditions of production will become generally widespread, the increased supply on the market will lower prices, and the surplus profit of the capitalist who first introduced the improvements will disappear.

In industry the surplus profit that arises from more advantageous conditions of production is always only an exceptional and passing phenomenon.

It is otherwise with the surplus profit in agriculture that arises from the unequal productivity of different kinds of soil. This unequal productivity is a result of natural conditions, and under given technical conditions it is a definite magnitude. Even if we assume that all the other conditions of production are completely equal for the various farmers, the differences in the qualities of the soil will still remain. Ground-rent is therefore not, like surplus profit in industry, a passing phenomenon, but a permanent one.

More than that. The price of production of an industrial product is determined, as we know, by the customary profit and the cost-price necessary on average under the given conditions of production, that is, by the outlay of capital necessary to make the product. The enterprise whose individual cost-price is lower than the “socially necessary” one obtains a surplus profit; whoever produces more dearly, on the other hand, obtains less than the customary profit, and in some circumstances even a deficit.

In agriculture, on the other hand, it is not the costs of production required on average soil that determine the cost-price. If worse soil is cultivated on a larger scale alongside the best, that is not, as we have already remarked, to be ascribed to exceptional personal circumstances or qualities of the farmer. It comes from the fact that the better soil alone is not enough to produce the means of subsistence necessary for the maintenance of the population. But the capitalist — and we are concerned here only with capitalist agriculture — demands from an enterprise in which he engages, besides the cost-price, the customary profit as well. The worse soil will therefore be cultivated by the capitalist only when the deficient supply has raised the prices of the means of subsistence so far that cultivation on the worse soil too becomes remunerative. That is to say, in agriculture it is not the costs of production as a rule required on average soil, but those required on the worst soil under cultivation, that determine the price of production.

From these two differences there follows yet a third difference between ground-rent and industrial profit. Population grows, especially where industry develops, and with it the demand for means of subsistence grows. New land must be taken into cultivation. Thus in the course of economic development the differences of productivity between the various pieces of cultivated land grow, and with them ground-rent grows.

We need only carry our example above further to show this clearly. For the sake of greater clarity we present the matter in tabular form, assuming that cultivation has advanced from the poor soil mentioned in the first example, which yields 400 hundredweight of wheat with an outlay of 3,200 marks, to still worse soil, which on the same area with the same outlay of capital produces only 320 hundredweight.

We see that in consequence of the extension of production and of the transition to worse soil, the ground-rent on soil A has risen from 500 marks to 1,650 marks. Soil B, which formerly yielded none at all, now bears a rent of 1,000 marks.

The rate of profit has the tendency, in the course of capitalist development, to fall. We cannot set out the reasons for this phenomenon here; the phenomenon itself is undisputed. Ground-rent, on the other hand, has the tendency to rise. That is not to say, however, that the ground-rent of a particular piece of land must always rise. In an old country of cultivation the extension of tillage will indeed as a rule proceed from good to worse soil. In a new country the reverse often occurs, because there one first takes into cultivation not the best soil but the most easily accessible. If we assume that through the extension of agriculture better soil, instead of worse, is taken into cultivation, our table would have looked something like this:

In this case the ground-rent on A has not risen, but soil X, which formerly yielded no ground-rent, now yields 1,000 marks. The mass of ground-rent that falls to landed property has grown, absolutely and also in relation to the total capital advanced, compared with that recorded in Table I.

In some circumstances so much land, and land so good, may even be brought under the plough that the prices of the means of subsistence fall and farming on the worst soil hitherto cultivated becomes unprofitable and must be given up. In this case the ground-rent of particular pieces of land falls, and yet even then the mass of the total ground-rent can rise, absolutely and in relation to the total quantity of capital employed in agriculture. This is illustrated by the following table.

The price of production has gone down, and soil B has gone out of cultivation altogether. Soil A has ceased to bear a rent, on soil X the ground-rent has sunk from 1,000 marks to 440 marks, and yet the total amount of ground-rent has risen from 1,500 marks (Table III) to 1,768 marks (Table IV).

It changes nothing in the example if, instead of single pieces of land, one takes all the kinds of soil of a country, or even of the world economy. Only then it is a matter not of hundreds and thousands but of hundreds and thousands of millions.

But it is not only the differences in the fertility of lands that form ground-rent, but also the differences in their situation, in their distance from the market. The more the population of a market for means of subsistence, and with it its demand for means of subsistence, grows, the greater the distances from which these must still be brought. But the more distant pieces of land will be taken into cultivation for the market only when the prices of means of subsistence have risen so high that they cover, besides the costs of production, the costs of transport too, and yield the average profit on the capital. That then gives a ground-rent for the nearer pieces of land.

Let us assume three pieces of land lying at different distances from the market, all of which, for greater simplicity, are to be equally fertile. The costs of transport for the product, say wheat, amount to one pfennig per hundredweight and kilometre. Then we have:

This kind of ground-rent too has the tendency to rise in the measure that population increases. But improvements in the means of communication that make the transport of means of subsistence cheaper work in the opposite direction.

Finally, yet a third form of ground-rent is possible, and in old countries of cultivation it becomes the most important. The production of means of subsistence can be increased not only by taking into cultivation land not yet tilled, but also by improving the land already brought under cultivation, applying more labour to it, in short, advancing a greater capital (outlays on wages, livestock, manure, implements, etc.). If this additional capital, applied to better soil, obtains a higher yield than is obtained by tilling the worst soil, which would otherwise have to be taken into cultivation, the surplus yield forms a new surplus profit, new ground-rent.

To illustrate this process we shall go back to Table I. There we have the two equally large pieces of land A and B. Let B belong to the worst soil, and let its price of production (10 marks per hundredweight of wheat) be the one that rules the market. On the piece of land A an additional investment of capital is now made — say the original capital is doubled — and let the new investment be not so productive as the first, but more productive than that applied to the worst soil. We then find

The ground-rent of A has thus been increased in its total mass by the additional investment of capital A2.

However various the forms of ground-rent considered here may be, they have one thing in common: they all spring from the differences in the fertility or situation of the individual pieces of land; they are differential rents.

But to whom do they fall?

The surplus profits in industry that arise from a greater productivity of labour, rising above the average, are pocketed by the capitalist, even if he did not invent but merely appropriated the better machine on which his superiority over his competitors rests, and even if the greater productivity of labour that arises from his being able to produce with a larger capital, and so on an enlarged scale, is not his merit. He does not fare so well with the surplus profit that comes from the greater fertility or more favourable situation of a piece of land.

If he is landowner and farmer at the same time, then he pockets the surplus profit too, of course. It is quite otherwise where the capitalist farmer and the landowner are two different persons, where the former is a mere tenant on another’s land. Land can neither be increased nor transferred at will. The farmer who is not himself a landowner cannot carry on farming without the landowner’s permission, and he must buy this permission by surrendering his surplus profit, the ground-rent. More than this surplus profit, however, the landlord will not as a rule obtain from the tenant (at least if the latter farms capitalistically, which is here presupposed). If the capitalist has no prospect of making his bourgeois gain, he gives up the business, and the landowner gets no tenants. If, on the other hand, the rent paid is less than the ground-rent, part of the surplus profit obtained remains in the tenant’s hands; he makes more than the average profit; competition is thereby attracted, and it works to raise the rent.

But the monopoly of the landowner, without whose permission all farming is forbidden, makes itself felt in yet another way. We have so far assumed that the worst soil yields no surplus profit. But if the market prices of capitalistically produced commodities were determined directly by their values and not by their prices of production, a surplus profit could fall to capitalist agriculture even on the worst soil.

To explain this, we shall reproduce the table given on p. 67, in which we illustrated the ratio of surplus-value to the total capitals of three different enterprises. We have three enterprises A, B, C of, as Marx says, “different organic composition of capital”, by which he understands the “composition of capital, in so far as it is determined by its technical composition and mirrors it” (Capital, III, 1, p. 124). The less constant capital is employed in relation to variable, the lower the composition of the capital. Let the exploitation of the workers, that is, the rate of surplus-value, be the same in all three cases.

If the commodities were sold at their values, that is, if the mass of surplus-value in each single case were equal to that of profit, then A, if B represents the average composition of capital, would have to obtain a surplus profit over the average profit. The profit of A is equal to 50 per cent, that of B to 25 per cent. The surplus profit of A is therefore equal to 25 per cent.

If A produces under the conditions of free competition, it will not be able to maintain this surplus profit; it will be a passing one. It is otherwise if it occupies an exceptional position, if it is able to exclude competition to a certain degree. That is the case with landed property. In all old countries it forms a monopoly and has the possibility of excluding its land from cultivation if the land yields it no rent. Where all are loving, Carlos cannot hate, and where every landowner draws a rent, the owner of the worst soil, which yields no differential rent, wants to pocket a ground-rent too. He does not let his land be cultivated until the prices of means of subsistence have risen above their prices of production, so that they yield a surplus profit for him too.

This surplus profit can arise, however, without the price of production of corn exceeding its value. For agriculture belongs to those branches of enterprise that, at least up to a certain level of technical development, show a low composition of capital, because they work up as good as no raw material that they do not first produce themselves. Rodbertus, who has the merit of having first pointed to the surplus profit of agriculture arising from this as a source of ground-rent, is mistaken, however, when he thinks that the low composition of agricultural capital is grounded in all circumstances in the nature of things. Though agriculture uses far less raw material than other capitalist branches of enterprise, its outlay on machines and buildings — granaries, stables, water-works, etc. — becomes ever greater with the progress of technique. It is very questionable whether intensive agriculture today still shows an organic composition of capital below the average.

In the reckoning of profit, however, the turnover time of capital also comes into consideration, which we have so far disregarded so as not to complicate our exposition unnecessarily, but which we must not overlook here. The capitalist reckons his rate of profit from the ratio of the mass of profit he obtains in a definite period (a year) to the total capital laid out. But with the same organic composition and the same size of enterprise, the total capital will have to be the greater, the slower the turnover of the capital. In agriculture, however, the turnover of capital is a particularly long one, and a turnover slower than the average may very well cancel a surplus profit arising from another source.

Let us assume that the three enterprises A, B, C of our table above have different turnover times of their capital. The first must lay out 200,000 marks, the second 400,000 marks, the third 600,000 marks, to obtain 100,000 marks of surplus-value. Let the turnover time of the first amount to one year (we leave aside here the difference between fixed and circulating capital), that of the second to six months, that of the third to three months. Then A, to lay out 200,000 marks in the year, must advance the full 200,000 marks. B likewise needs only 200,000 marks for its outlay of 400,000 marks, and C actually meets the annual outlay of 600,000 marks with a capital of 150,000 marks.

We then have:

The quicker turnover has more than made up for the loss that C suffered in the table above through the high composition of its capital.

Rodbertus was therefore in error when he supposed that from the low composition of agricultural capital a surplus profit must of natural necessity spring if agricultural products are sold at their values. In the first place this low composition is no necessity, and in the second its effect can be more than made up for by the slowness of the turnover of capital in agriculture.

But if Rodbertus overshot the mark when he sought to prove that a special form of rent must arise from the low composition of agricultural capital, he nevertheless pointed the way to showing how it can arise. It was reserved for Marx to investigate the laws of this special rent, which he called absolute ground-rent.

Like every monopoly price, the price of means of subsistence created by the monopoly of landed property can also rise above their value. The extent of this rise depends only on how far, within the limits of the monopoly, the laws of competition can still make themselves felt. It is determined by the competition of the landowners among themselves and that of foreign countries, by the extent to which, under the influence of rising prices, additional capital is applied to the better soil and its production increased, and finally, and this forms the most important factor, by the purchasing power of the population. The higher the prices of means of subsistence, the smaller the circle of consumers, the greater the number of those who cannot afford these prices and must cut down, which must increase the demand for substitutes and promote their production. If it proves impossible in this way to provide the mass of the population adequately with means of subsistence, then in the end increased emigration and increased mortality, that is, a decline of the population, will set in.

The gentlemen landowners cannot, then, set absolute ground-rent as high as they please, but what they can extort, they extort.

Once absolute ground-rent is paid on the worst soil, it must be paid on every other too. A simple calculation shows this. Let us recall Table II. According to it the worst soil C, at a price of 12.50 marks per hundredweight of wheat, paid no ground-rent at all. Let us now see how this table would turn out if soil C were withheld from cultivation until the price of wheat had risen far above 12.50 marks. Let us assume that it rises so high that even the taking in hand of soil C, and with it the increase of supply to the market, does not press it below 15 marks. We should then have:

The owner or owners of soil C have, in their practical Christianity, by making wheat dearer, not merely created a rent for themselves but also almost doubled that of their colleagues. The means by which they achieve this is that of every cartel — restriction of production in order to raise prices. The difference from an industrial cartel consists in the fact that the natural monopoly of the gentlemen landowners makes raising prices easier for them than for their colleagues in industry and commerce, who must first create a monopoly for themselves artificially. That does not, of course, prevent no one from being more indignant about corn-usurers and wheat rings than precisely the landowners — the same people who prohibit “Jewish” dealing in futures because it supposedly stands in the way of making bread dearer.

Ground-rent is pocketed solely on the strength of the landowner’s title of possession. Where he leases his estate he need not lift a finger to rake in his ground-rent. To realise the profit that his workers produced for him, the capitalist entrepreneur, if he does not take an active part in production, must at least be active in the sphere of the circulation of commodities, in buying and selling — or at least he had to be, until the joint-stock companies brought about and revealed his dispensability in this field too. The landowner need merely possess his landed property, and he sees his rents not only come in but often grow of themselves as well.

Capitalist ground-rent must not be confused with the burdens formerly laid on the peasant by the feudal lord. To these there originally corresponded, and more or less throughout the Middle Ages, important functions that the lord had to fulfil — functions that the state then took over, and for which the peasant pays taxes to the state. The lord had to provide for the administration of justice, to exercise the police, to represent the interests of his dependants towards the outside world, to protect them by force of arms, to perform military service for them.

With the landowner of capitalist society there is no question of any of this. In so far as ground-rent is differential rent, it is produced by competition; in so far as it is absolute rent, by monopoly. That it falls to the landowner is in the one case as in the other the consequence not of any social functions whatever, but solely and exclusively of private property in land.

Ground-rent itself appears in practice undivided; one cannot recognise which of its parts are differential rent and which absolute rent. Usually they are mixed besides with interest on capital for outlays the landowner has made. Where the landowner is at the same time the farmer, ground-rent appears as a part of agricultural profit.

Yet the distinction between the two kinds of rent is of the greatest importance.

Differential rent arises from the capitalist character of production, not from private property in land; it would continue if the land were nationalised, as the land reformers want, while the capitalist conduct of agriculture remained; only it would then flow no longer to single private persons but to the community.

Absolute ground-rent springs from private property in land and from the opposition in which the interest of the landowner stands to that of the community as a whole. The nationalisation of the land would offer the possibility of abolishing it and reducing the prices of agricultural products by its amount.

For — and this is the second difference between differential and absolute rent — the first forms no element in the determination of the prices of agricultural products, but the second does. The first springs from the prices of production, the second from a rise of market prices above the prices of production. The first is formed from the surplus, the surplus profit, obtained by the greater productivity of labour on better soil, in a better situation. The second, on the other hand, does not spring from a surplus yield of certain parts of agricultural labour; it is therefore possible only through a deduction from the existing values, which the landowner draws to himself — a deduction from the mass of surplus-value, that is, a lowering of profit, or a deduction from wages. If the prices of means of subsistence rise, and with them wages, the profit of capital falls. If they rise without wages rising in the same measure, the workers are cut short.

Finally it can happen — and this will be the case as a rule — that workers and capitalists share the loss they suffer through absolute ground-rent.

Fortunately the rise of absolute ground-rent has its limits. We have already pointed out above that the landowners cannot fix its level entirely at will. Until recently, it is true, it was steadily rising in Europe, like differential rent, thanks to the growth of population, which sharpened the monopoly character of landed property more and more. But overseas competition has broken through this monopoly to a high degree. We have no reason to suppose that differential rent in Europe has suffered under overseas competition, except in some districts of England. Elsewhere we nowhere see land put out of cultivation; the worst soil is still cultivated; at most the kind, but not even the intensity, of its cultivation is different.

But absolute ground-rent has fallen, and this has benefited above all the working classes. If their standard of life has in many cases improved since the seventies, especially in England, this is certainly to be ascribed in the main to the fall of absolute ground-rent — besides, to be sure, the strengthening of the political and economic power of the proletariat, which prevented the capitalist class alone from drawing the advantage from it.

But against these advantages stand disadvantages too. The fall of ground-rent has led to a crisis in agriculture that is not merely a passing one, like industrial and commercial crises, but a chronic one, especially in those regions where, as is the case in most countries, the landowner and the farmer are one person, so that every loss of the landowner becomes a loss of the farmer too, and where ground-rents are fixed in the price of land.

Private property in land, which before the appearance of overseas competition became, through the rise of ground-rent, one of the most abundant sources of the immiseration of the working classes, has since this competition began to work become a source of the immiseration of the landowners and farmers. And every attempt to stop up one of these sources makes the other flow all the more abundantly.

Where private property in land prevails and commodities are produced from the land, the individual pieces of land themselves become commodities. When the means of production become capital, it is an obvious step to regard the land too as capital. But that it by no means is. Call the land capital as often as one likes, the landowner does not become a pfennig richer by it. His landed property has indeed become a commodity, which has a definite price and market value. But this is subject to quite different laws from the ordinary value of commodities. The land is not a product of human labour; its price is therefore determined neither by the labour necessary to produce it nor by its costs of production. It is determined by ground-rent. In capitalist society the value of a piece of land or a landed estate is equated with that of a capital whose yield of interest is equal to the magnitude of the ground-rent in question. The magnitude of this capital — that is the market value of the land. It is therefore determined on the one hand by the level of ground-rent and on the other by the level of the “customary” rate of interest.

Interest on capital is that part of profit which a capitalist entrepreneur leaves to an owner of capital for placing his capital at his disposal. Or, to put it another way, that part of profit which the capitalist is able to obtain on the strength of the mere fact of his right of property in the capital, without himself appearing actively as an entrepreneur in commerce or industry. This is the case not only with loan capital but also with share capital. The forms of primitive loan capital and its appearance outside the sphere of production do not concern us here.

Like the rates of profit, the rates of interest on capital also have the tendency to equalise themselves with one another. Where more than the average interest is paid, new capitals stream in; where less is paid, capital streams away — other circumstances, security and so on, being equal. Indeed, “the rate of interest, whether it be the average or the prevalent market rate, appears as a uniform, definite and tangible magnitude in a very different way from the general rate of profit” (Marx, Capital, III, 1, p. 349).

The equalisation of the rate of interest also takes place far more quickly than that of the rates of profit. The latter is accomplished through changes in the whole national process of production, through the increase of production in one field and its reduction in another. Money capital has a more convenient method of equalising the rate of interest, one that can be accomplished in the twinkling of an eye. On the market where investments of capital are bought and sold, those that yield a higher than average rate of interest are valued correspondingly higher, investments that bring in a lower rate lower. If a share that I have bought for 200 marks bears a dividend of 10 per cent, and the customary rate of interest stands at 5 per cent, I can sell it for 400 marks, no matter how high the value of the means of production it represents.

Land is regarded as just such an investment of capital, and is valued according to the level of the ground-rent it yields its owner.

But when some economists on this account reckon land as capital, they completely overlook the differences that obtain here.

The above-average interest borne by a money capital invested in industrial enterprises can, under free competition — that is, apart from relations of monopoly such as we find, for example, with railways, mines and the like — no more maintain itself permanently than above-average rates of profit. The valuation of an investment of capital above its price of production can therefore also be only a passing stage.

With the price of land there is no question of this; we already know that land as such has no price of production. A general fall in the rate of interest in no way affects the market value of money capitals, but it does affect that of land. A piece of land that yields a ground-rent of 6,000 marks will be worth 100,000 marks at a rate of interest of 6 per cent, 150,000 marks at 4 per cent. It would be ridiculous, on the other hand, to expect that a loan or share capital of 100,000 marks that bears 6 per cent today would become worth 150,000 marks with a general fall of the rate of interest to 4 per cent. Rather, as a rule, in consequence of a conversion or of increased new investments in the field in question, it will cease to bear 6 per cent, will bear only 4 per cent too, and will remain worth 100,000 marks. The general fall of the rate of interest raises the market value of land, not that of money capitals.

It is quite possible, of course, that capital is also sunk in the land, and in capitalist countries this is mostly the case. But that merely complicates the case without changing anything in its essence. Then the landowner’s share of agricultural surplus-value contains not merely ground-rent but also interest on capital, and the price of land contains, besides the capitalised ground-rent, the capitalised interest on capital too, that is, in normal cases, the capital itself.

Interest on capital alone, however, can in no case explain the price of land, for land in which no capital is sunk, indeed land that is entirely uncultivated, also acquires a price when the capitalist mode of production is sufficiently developed. And here we have the second difference between land and capital. The value of a money capital at any given time is measured on the capital market by the interest it actually yields; the price of a piece of land is measured by the ground-rent it can yield. And there is yet a third difference: the means of production created by human labour wear out (physically and morally, the latter through new inventions) and sooner or later cease to exist; they must be renewed again and again. Land, on the other hand, is indestructible and eternal — at least from the standpoint of human society.

These last two factors would make it appear senseless for the owner of an industrial enterprise not to make use of it but to let it stand idle. For the landowners this procedure is by no means senseless when ground-rent is rising (that is, especially in the towns). For them it can often be very profitable to withhold a piece of land from building or cultivation.

All these differences are concealed when land is called capital. Nevertheless many economists still hold fast to this to this day — so Brentano, in his work on agrarian policy already mentioned several times. The proof of it for him is the fact that capital is sunk in the land, and that Rodbertus describes an urban building as capital,

“although the site on which the building is erected is a monopolised gift of nature. … Land is therefore capital today. But it differs from other capitals, to be sure, in so far as it is a monopolised gift of nature that exists only in limited quantity. But this is the case not only with land used for agriculture but equally with land used for dwellings or for industrial purposes, and equally with a waterfall, a mine, a railway and the like.” (Agrarpolitik, p. 13.)

This proves, of course, not that land is capital, but that urban land, waterfalls and mines also yield a ground-rent. As for the railways, however, a lively imagination is needed to reckon them among the “gifts of nature”. As Dogberry says: “To be a well-favoured man is the gift of fortune; but to write and read comes by nature.”

Call land capital as often as one likes, the landowner does not thereby become a capitalist.

In fixing the price of a landed estate, it is true, other factors besides ground-rent come into consideration: besides the “land capital”, that is, the capitalised ground-rent, there is also the real capital advanced for the agricultural enterprise — buildings, installations, livestock and dead stock. The market value of this capital is reckoned according to the prices of production (minus wear and tear).

A landed estate may also, however, be bound up with luxury installations, and as a rule it is so in the case of large landed property. Such installations, which have nothing whatever to do with production, naturally raise the price of the estate, but not the ground-rent. The higher the price of these luxury installations, the lower will the interest on the “land capital” appear if one adds it to that capital. If, to stay with our example, a piece of land yields a ground-rent of 6,000 marks, it will be worth 200,000 marks at an average customary rate of interest of 3 per cent. If the owner builds a mansion on it at an outlay of 100,000 marks, he will now put the market value of the estate at 300,000 marks; but that means that the “land capital” now bears interest of only 2 per cent, much lower than ordinary capital.

One can very often hear it asserted that land capital possesses the remarkable property of bearing particularly poor interest, that no kind of capital yields so low an interest. This is altogether wrong.

As we have just seen, this kind of capital does not exist at all; it is only a fiction; what really exists is ground-rent, and the amount of the “land capital” is first calculated from it. In this calculation, it is true, ground-rent is as a rule capitalised at a higher figure than corresponds to the average rate of interest — not because land capital has the mysterious property of bearing a lower interest, but because the capitalist has the by no means mysterious but very understandable property of regarding land, the place where ground-rent is produced, as an investment of capital that shows special advantages. And that is mostly the case. Not only are material and immaterial advantages often bound up with land that do not come to light in the ground-rent — the possession of a country house or mansion, to which we have already pointed, the production of means of subsistence for one’s own use, hunting, political influence; ground-rent also had, until recently in Europe — and still has in the towns and their surroundings — the tendency, in contrast to interest on capital, to rise. The capitalist had to pay specially for this prospect when he bought land.

But all these transactions do not make the landowner — as landowner — a capitalist. One can of course be landowner and capitalist at the same time, but that is not the point here. Purchase and sale make landed property an investment of capital, but not capital, any more than, say, a judge’s office in the last century became a capital itself because its acquisition cost a capital. The landowner can, it is true, sell his landed property and thereby become a capitalist; but at the moment he becomes one he ceases to be a landowner. Conversely, the capitalist who uses his whole capital to buy landed property ceases to be a capitalist at the moment he becomes a landowner.

That the landowner is not a capitalist was first noticed by the English lords, who lost the feudal services of their dependants earlier than those of the Continent and had to set about farming capitalistically earlier. It remained an attempt, for the credit system was not yet developed. They saw themselves compelled (as early as the fifteenth century) to divide their estates into larger or smaller farms and to lease these to farmers who themselves possessed the livestock and dead stock needed to work the estate. Leasing to the capitalist tenant — that was the way by which they brought agriculture the capital it needed.

Modern capitalist tenancy is less developed than in England on the European Continent, especially north of the Alps.

In England in 1895 only 4,640,000 acres of the cultivated area were farmed by their owners, as against 27,940,000 farmed by tenants. There were counted there 61,014 holdings with owned land and 459,092 with rented land.

The figures from Germany and France read differently. Yet here too tenancy is on the increase. In the German Empire the holdings with rented land increased from 1882 to 1895 from 2,322,899 to 2,607,210, that is, by 284,311, while the number of holdings without rented land fell from 2,953,445 to 2,951,107. In France there were counted farmers with:

Even in the United States tenancy is on the increase. Farms were counted there in:

In the old North Atlantic states of the Union we find not merely a relative but, just as in old Europe, an absolute decrease in owner-farming. There the farms were:

But in all these countries owner-farming still far predominates. The capitalist conduct of agriculture began to be of importance there only at a time when urban capital, and with it the credit system, was very developed. With that a second way of coming by capital was opened to agriculture: by recourse to credit. This is partly personal credit, partly real or mortgage credit. Only the latter shall concern us here. The landowner takes up a mortgage, that is, pledges his ground-rent, and so receives the money to carry out the necessary improvements and make the necessary purchases of livestock, machines, artificial manure, etc.

Under the capitalist system of tenancy the three great groups of income in capitalist society appear sharply separated. The owner of the land and the owner of the other means of production, the capitalist, are two different persons, and over against them stands the wage-labourer exploited by the capitalist. The latter draws wages, the capitalist the profit of enterprise, the landowner ground-rent. The person of the landowner is entirely superfluous to the agricultural enterprise; he is active neither in organisation nor in commerce, like the capitalist entrepreneur; he has nothing to do but extort the highest possible rents from the latter and consume them with his parasites.

Under the mortgage system the matter is less clear and simple, but at bottom it comes to the same thing. Here too we find the division into two between the landowner and the entrepreneur — hidden, it is true, behind particular juridical forms. The ground-rent that flows to the landowner under the system of tenancy falls under the mortgage system to the mortgage creditor. He is the owner of the ground-rent, and thereby also the actual owner of the land itself. The nominal landowner, on the other hand, is in reality a capitalist entrepreneur who pockets the profit of enterprise and the ground-rent and hands the latter over again in the form of mortgage interest. If his enterprise fails, if he cannot pay the ground-rent owed, then he must leave his supposed property just as the tenant who falls behind with his rent must leave the farm; indeed, very often the mortgage creditor even has the power to drive an awkward farmer from house and home by calling in the mortgage, just as the landowner can by terminating the lease. The difference between the system of tenancy and the mortgage system is only this, that under the latter the real landowner is called a capitalist and the real capitalist entrepreneur a landowner. Thanks to this quid pro quo our farmers, who actually perform capitalist functions, love to wax indignant about exploitation by “mobile capital”, that is, by the mortgage creditors, to whom in fact the same economic role falls as the landowner plays under the system of tenancy.

In all civilised states we find a rapid increase of mortgage debts.

In Prussia the sum of new charges on rural landed properties exceeded that of cancellations by:

That shows an increase of 1½ thousand millions within a few years!

This rapid increase means nothing else than that everywhere the same process is going on, if in another form, that has already advanced so far in England: the separation of the farmer from landed property. The farmer is far from becoming a proletarian thereby, any more than the English tenant is a proletarian. Like the latter, he possesses all his means of production except the land (we are dealing here only with mortgage indebtedness, not with personal indebtedness).

Nor need the increase in mortgage indebtedness necessarily indicate a state of distress in agriculture. It can spring from one — the need to improve and raise the enterprise is not the only cause of mortgage debts. We shall come to know other causes later. But the progress and prosperity of agriculture too must show themselves in an increase of mortgage debts: first because of the growing need for capital that a progressing agriculture develops, and then because of the rise of ground-rent, which makes an extension of agricultural credit possible.

In Austria, which probably possesses the best mortgage statistics for a longer period, the increase of mortgage debts (excluding Galicia, the Bukovina and the Littoral) amounted to:

It was precisely in the best times for agriculture (and for urban landed property), at the beginning of the seventies, that mortgage debts rose most.

The splitting of the land-owning farmer into two persons, the landowner and the entrepreneur, is a consequence, of natural necessity, of private property in land in the capitalist mode of production. But this splitting also creates the possibility of abolishing private property in land even when the conditions for abolishing private property in the other means of production of agriculture are not yet given. In the regions of the system of tenancy that can happen through the nationalisation, or socialisation, of landed property; in the regions of the mortgage system through the nationalisation of mortgages.

The conditions for this are the more present, the greater the concentration of landed property (with tenant-farming) or of mortgages (with owner-farming) in few hands. This concentration is unfortunately hard to demonstrate statistically for whole states and longer periods. Though we possess adequate statistics of agricultural holdings, mortgage statistics have so far been wholly inadequate, and the statistics of landed property not such as to permit comparisons of different periods and to let the union of different properties in one hand be followed generally. Examples of the concentration of landed property in individual Prussian provinces we shall give further on in another connection. In general one may well assume that where the number of tenancies and the area of rented land increase, landed property too is concentrating in fewer hands, for only those who do not need their own land for their own farming, who have a superfluity of it, can think of leasing it wholly or in part. The countries of a developed system of tenancy are also countries in which large landed property predominates.

More important than the system of tenancy for Germany is the mortgage system. Here the process of the concentration of landed property, or, if one wants to be exact, of ground-rent, is clearly visible. We shall see further how the numerous petty village usurers are pushed aside more and more to make room for great centralised capitalist or co-operative institutions that monopolise mortgage credit. According to the statements of F. Hecht in his work Die staatlichen und provinziellen Bodenkreditinstitute in Deutschland, the total sum of mortgage bonds in circulation issued by the German land-credit institutions reached towards the end of 1888 the amount of more than 4¾ thousand million marks. Of this, 1,900 million marks fell to the co-operatively organised institutions, 420 million to the state or provincial land-credit institutions, and 2½ thousand million to the joint-stock mortgage banks. Their mortgage credit, it is true, extends in great part to urban landed property. But to make up for that, other great institutions come into consideration for the centralisation of mortgage credit: savings banks, insurance companies, foundations and corporations of all kinds. Thirty-five German life insurance companies have invested 80 per cent of their funds in mortgages, the Prussian savings banks over 50 per cent. In Prussia the rural mortgage holdings of the savings banks amounted in 1892 to round about a thousand million marks; the 17 co-operative land-credit institutions (Landschaften) in the Prussian monarchy had issued mortgage bonds to the value of 1,650 million marks in 1887, while the 11 private land-credit institutions domiciled in Prussia had acquired mortgage claims to the value of 735 million marks in 1886. These figures already indicate an enormous concentration of ground-rent in a few central institutions; but the concentration is still increasing rapidly. In 1875 the German mortgage banks had issued mortgage bonds to the value of 900 million marks, in 1888 of 2½ thousand million; in 1892 this sum had risen to 3,400 million, concentrated in 31 banks (in 1875 in 27).

Hermes, in his article on Landschaften (in the second supplementary volume of the Handwörterbuch der Staatswissenschaften), gives some examples of how fast mortgage debts are concentrating in the co-operative land-credit institutions of large Prussian landed property. The Kur- und Neumärkische Ritterschaftliche Kreditinstitut has issued mortgage bonds (less those redeemed) to the value of:

The Neue Brandenburgische Kreditinstitut, founded in 1869, has issued mortgage bonds (less those redeemed) to the value of:

These are figures that surely indicate clearly that the “Marxian dogma” holds no less for landed property than for capital. In this sense its operation is not disputed at all. It is supposed, however, not to hold for the agricultural enterprise. That is a much more important question, which we shall discuss in more detail later. Here we are dealing only with landed property and the two shapes it assumes under the capitalist regime.

We have seen that the system of tenancy and the mortgage system prove to be alike in many respects. But they also show important differences.

The most important is that the movement of rent follows the movements of ground-rent. That is not the case with mortgage interest. This too is not immovable, though it is more sluggish than rent; but its movement is determined not by the movement of ground-rent but by that of interest on capital, which follows quite different laws. The two can move at the same time in opposite directions. Interest on capital can fall and ground-rent rise. Until recently that was the regular movement in the old countries of capitalist production.

Under the system of tenancy the advantage of this fell to the landowner. Under the mortgage system, on the other hand, the actual agricultural entrepreneur and nominal landowner put the increase of ground-rent in his own pocket or used it to acquire new mortgage capital.

This advantage of landed property falls to the mortgage creditor as little as the others mentioned above, which raise the market value of landed property and bring about the low interest on “land capital”. In consequence, the mortgage creditor, at least when ground-rent is rising, demands a higher interest on his capital than that yielded by the “land capital”; that is, the sum of a mortgage capital that requires the whole ground-rent to pay its interest is less than the market value of the land encumbered with it.

Let us illustrate this by the example given above of a landed estate yielding 6,000 marks of ground-rent. Let the average rate of interest be 4 per cent; the capitalised ground-rent would then amount to 150,000 marks. But numerous advantages are bound up with the estate, which we have already mentioned, the most important of them the prospect of a rise in ground-rent. The owner will therefore obtain considerably more than 150,000 marks for his estate, let us say 200,000 marks. That would correspond to an interest of 3 per cent on the “land capital”. But the mortgage creditor demands his average rate of interest of 4 per cent, while the farmer can pay him only 6,000 marks of mortgage interest. The mortgage indebtedness can therefore go only up to 150,000 marks, can amount to only three-quarters of the value of the land, and yet consume the whole ground-rent.

All the same, when ground-rent is rising — and that is presupposed here — the farmer is better off under the mortgage system than under the system of tenancy. But the medal has its reverse side too, and that comes to light when ground-rent falls.

Now the tenant, at least the capitalist one, shifts his losses on to the landowner, who must, if not without resistance and after a lengthy struggle, consent to a reduction of rents. The landowner who farms his own land, on the other hand, must at first bear the disadvantages of the fall of ground-rent himself; he cannot without more ado shift them on to the mortgage creditor.

What under the system of tenancy becomes, after a shorter or longer transitional stage, a distress of the landowner is under the mortgage system always a distress of the agricultural entrepreneurs, or, as they say, of “agriculture”. The actual landowners, the mortgage creditors, are not affected by it at first. The rate of mortgage interest may indeed fall at the same time as ground-rent, but this is then the consequence not of the agricultural distress but of the fall of interest on capital in general, a phenomenon that affects all loan capital. With that we are not concerned here. The rate of interest on mortgages is determined by the general rate of interest on capital, and the greatest distress of agriculture cannot press it below that. On the contrary, the greater the distress of the farmer, the greater the risk premium he has to pay, the higher above the average will the rate of interest stand to which he must submit, at least when taking up new debts, and the further below the price of the estate will the limit stand up to which he can encumber it with mortgages.

Under the mortgage system the adaptation of agriculture to falling ground-rent takes place not, as under the system of tenancy, by a reduction of interest, but by the bankruptcy of the entrepreneurs and the loss of capital by the mortgage creditors — in any case not the most painless and rational operation.

Besides the system of tenancy and the mortgage system a third case is possible, namely that the landowner is at the same time a capitalist too, that is, that besides his landed property he possesses enough ready money to set up a modern farm entirely from his own means, and to pocket the whole ground-rent besides the profit of enterprise.

This kind of union of landowner and capitalist in one person is, however, historically an exception; and in the further course of the capitalist mode of production it must remain an exception. The reason for this is to be sought, first, in the superiority of large-scale over small-scale enterprise, and then in private property in land.