Journal of Peasant Studies Differential and absolute ...

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Journal of Peasant Studies

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Differential and absolute land rent Jayati Ghosha a Darwin College, Cambridge

To cite this Article Ghosh, Jayati(1985) 'Differential and absolute land rent', Journal of Peasant Studies, 13: 1, 67 — 82 To link to this Article: DOI: 10.1080/03066158508438283 URL: http://dx.doi.org/10.1080/03066158508438283

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Differential and Absolute Land Rent

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Jayati Ghosh* This article discusses the evolution and usefulness of concepts of land rent in Classical Political Economy, It is argued that the theory of differential rent (especially in its Ricardian elaboration) is adequate to cover explanations of land rent in purely capitalist agriculture. The Marxist concept of absolute rent races a number of difficulties with respect to pure agrarian capitalism. It is more useful in analysing agricultures in the process of transition to capitalism or where capitalist cultivation for profit co-exists with peasant cultivation for survival. I. INTRODUCTION

The study of tenurial relations and land rent is relevant not only for a predominantly agrarian economy but for all societies where land and its produce play an important role in the economy. The institution of tenancy predates markets, but the leasing of land has proved to be very adaptable to the exigencies of market domination. The development of generalised commodity production and cultivation for profit implies a more complex mode of distribution of the surplus, but it does not undermine the importance of land rent as a crucial element of the surplus. Thus the nature of land relations and rent payments affects not only agricultural production relations, but also the level and distribution of the surplus and its implications for either the stagnation or growth of agriculture. The major classical theories of rent arose with respect to England in the late nineteenth and early twentieth centuries. The socio-economic context within which the theories were formulated had an important impact on the nature of the analysis. Thus, the explicit or implicit assumptions which underlay the classical explanations of land rent (both for the Ricardian and Marxist schools) were based on agrarian capitalism. Within this theoretical framework, there is competition between landlords as well as between tenants, which determines the final land-lease contracts and the rent rates. This is distinguished from those explanations of land rent which are based on 'tradition' or custom. Cultivation is solely for profit, and since there is free mobility of capital between agriculture and other sectors, the capitalist cultivators receive the socially average rate of profit (that is, that rate of profit which is equalised across all the sectors of the economy by capitalist * Darwin College, Cambridge CB3 9EU. I am grateful to Terry Byres for comments, criticism and encouragement, and to Geoff Harcourt, Abhijit Sen and Richard Pearce for helpful discussions.


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The Journal of Peasant Studies

competition and the mobility of capital) on their investments in agriculture. These assumptions are absolutely crucial for these theories, as will be elaborated in the next section. This is because, since capitalist cultivators will shift their investment elsewhere unless they receive the socially average rate of profit, this enables land rent to be determined as a residual after profits and wages have been determined. If there exist any cultivators who cultivate for subsistence survival rather than profit, then the determination of rent as a residual is no longer explicable. The following section briefly outlines the major classical approaches to capital land rent, while the next section considers specifically the Marxist concept of absolute rent. In the fourth section, some recent efforts to deal with the problems of absolute rent are discussed, and the last section attempts to put forward an alternative interpretation of absolute rent as essentially pre-caplitalist rent and considers how this offers insights into the transition to agrarian capitalism. II. RENT IN CLASSICAL POLITICAL ECONOMY

The emergence of theories of land rent in Europe can be traced to the late eighteenth and nineteenth centuries, coterminous with the development of political economy as a distinct discipline. To some extent, the two may be causally related [Tribe, 1978: 24-161]: on the one hand, the analytical issues raised by the problem of land rent cover aspects of both value and distribution in the economy as a whole; on the other hand, any analysis of a predominantly agrarian economy must come to terms with the nature of land relations and, consequently, rental forms. Thus, some of the earliest writers whose concern was primarily with economic matters, addressed the issue of control over land and its effects. Both Cantillon and Petty, who argued, severally, that the twin sources of wealth were land and labour, accepted the institution of private property in land and saw rent as a 'just' return to landowners [Cantillon, 1755: 27-32; Petty, 1676: 249-67]. The French 'economistes', or Physiocrats, were among the earliest theorists not only of the system of production but of agricultural rent. In fact, rent, in the form of 'net product', was the Iynchpin of their analytical system [Meek, 1962; Marx, 1972, TWV, II: 44-53]. In a sense they followed Cantillon, in that agriculture alone was conceived of as capable of yielding a net product (surplus) because of the productive powers of land when worked upon by labour. The creation of this surplus was integral to the concept of the circular flow of the economy (as elaborated, for example, in Quesnay's Tableau Economique) between the three major classes: the landed proprietors who received rent and made advances for production; the agricultural workers; and the 'sterile' artisanal and non-agricultural workers. This notion of the rent, which by definition constituted the whole surplus, was essentially physical: the Physiocrats did not have a theory of price [Meek, 1962: 18-22]. In the writings of Quesnay and Mirabeau, agriculture was the only productive activity and consequently the pattern of


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expenditure of rent, between productive use (in agriculture) and unproductive expenditure (on manufactured goods) was the crucial indicator of growth in the economy. For these early theorists of rent the determination of rent posed no conceptual problem, for they simply equated the rent with the entire surplus of output over the consumption of workers on land and cultivation costs required to ensure continued production at the same level. However, once the existence of other elements in surplus was accepted (in particular with the assumption of capitalist agriculture), the determination of rent became an important focus for theory. The first to treat the problem of land rent within the framework of a capitalist agriculture was Adam Smith [1776]. Smith's discussion of rent was sketchy, and often contradictory. He defined rent simply as the price paid for the use of land, and distinguished between gross rent (which includes interest on the capital embedded in land improvement) and net rent which was the payment for the use of the properties of the soil alone. This foreshadowed Ricardo's definition of rent, but was less precise, as was Smith's treatment of the variation in rent from lands of different fertilities. In general, Smith treated rent as a monopoly price resulting from the monopoly of landownership - but he suggested alternative possibilities as to whether rent did or did not enter the product price. The monopoly argument was taken over by a number of later writers, and could even be considered as a precursor of Marx's concept of absolute rent. Thus he argued that land rent 'is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give' [Smith, 1776: 161]. This implied an independent determination of rent, which corresponded with his 'additive' theory of price. On the other hand, when using his other price concept of labour-commanded value [Dobb, 1973: 38-64], he changed this argument to what (in retrospect) came to be the Ricardian belief: 'Rent... enters into the composition of the price of commodities in a different way from wages and profits. High or low wages and profits are the cause of high or low price; high or low rent is the effect of it [Smith, 1776: 162]. Although various aspects of Smith's discussion were confused, his was the first attempt to incorporate the explanation of land rent into a more general theory of the functioning of an economy in which manufacturing and agriculture both produced value and production was carried out by capitalists. Although he did not formalise it, Smith was fully aware of the tendency of rents to vary with land fertility [Smith, 1776: 192, 364]. It was this aspect of rents which formed the basis of the theory of rent which subsequently became the predominant nineteenth-century explanation, and conditioned much of the economic debate of that period, particularly in England. The 'Ricardian' theory of differential rent was originally formulated by James Anderson [Anderson, 1777: 4-7], who argued that the price of agricultural product was determined by the cost of production on the worst quality soil under cultivation, and did not include rent. Rent, furthermore, was not the whole payment to the landlord for the use of the soil, payable


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equally by all farmers, but was the difference of price over cost of production on any non-marginal field. The existence of extensive diminishing returns created the differential surplus produce; the presence of a class of landed proprietors effected its transfer from farmers to landlords, and thus led to the emergence of the category rent. This was a clearly defined alternative to the Smithian concept of rent as a monopoly price. It also was a break from the tradition (found in the Physiocrats as well as in Smith) of equating the major classes with the major distributive shares, since all rent need not be paid to the landlord if the conditions of competition so permitted. Anderson's theory was taken up in the early nineteenth century by a number of other writers, notably West, Torrens and Mai thus, and clearly influenced Ricardo and his followers. West offered a theory based entirely on the supposition of the inevitability of diminishing returns from land seen historically. He thus moved from a conception of differential returns from soils of varying quality at a point in time, to a rigid 'historical' law which could only be established with the help of a number of heroic assumptions. These included: no technical progress in cultivation, extension of cultivation always from better to worse quality lands, value movements exactly reflecting physical changes, etc. [West, 1815: 14-15]. Contemporaneous with West's pamphlet, Malthus [1815] put forward a more extended treatise which incorporated Anderson's theory but set it very much within Malthus' own framework of value and distribution. Although he argued that all rent was differential rent, Malthus stressed the 'productive' powers of land that brought about this situation, and linked this argument with a more general one about the importance of maintaining and increasing the landlords' share in order to sustain economic growth. [Malthus, 1815: 18-21; 1836: 143-7]. Malthus' consideration of rent contained a number of confusions most of which can be traced to one primary error: the inability to distinguish between rent and other components of surplus, especially profits. This led him to associate all increases in surplus and the rate of surplus produce with increases in rents and the rent-rates. Both this idea, and the conception of land as productive and thus generative of rent, reflected some Physiocratic elements in his thought. Malthus accepted Anderson's (and Ricardo's) definition of rent, but complicated it by asserting that rent was actually due to three factors: (1) the ability of the land to produce a surplus over necessary costs; (2) the ability of the supply of agricultural produce to create its own demand; and (3) the comparative scarcity of the most fertile land [Malthus, 1815: 8-12]. The third factor alone was sufficient to explain rent for the other theorists of differential rent. The first factor was an explicit post-Physiocratic conception of the unique power of land of producing a surplus - whereas (as Ricardo pointed out) this could be a feature of all forms of economic activity. The second factor Malthus mentioned was actually incorrect. Malthus arrived at this through his strict food-population correlation: not only did supply create its own demand by enabling the growth of a popu-



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lation to be fed, but demand was always equal to supply. Such a conception of rigidly biologically-determined food consumption determining population, and its association with agricultural output, was both mistaken and unnecessary for Malthus' theory. Ricardo provided possibly the clearest and most systematic nineteenthcentury exposition of the theory of differential rent. He developed Anderson's theory and introduced the possibility of intensive differential rent, resulting from the existence of diminishing returns from successive applications of doses of capital and labour on the same unit of soil.1 His was the most famous (and later, controversial) definition of rent: 'Rent is that portion of the produce of the earth, which is paid to the landlord for the use of the original and indestructible powers of the soil [Ricardo, 1817: 67]. Unlike the Physiocrats and Malthus, Ricardo argued that rent was due, not to any unique productive powers of land, but to its inherent limitation. It was only the scarcity of land, the fact that it is not unlimited in quantity and uniform in quality, which allowed landlords to appropriate rent. This differentiated land from other conditions of productions such as air, for which the monopoly of ownership by a class is not feasible. 'Can anyone doubt that if a person could appropriate to himself the wind and the sun, he would be able to command a rent for the uses to be derived from them?' [Ricardo, 1820: 104]. This also implied that the theory of differential rent could be extended to other scarce assets essential for production - an argument which was to have a number of implications for later theoretical developments, such as Marshall's concept of quasi-rent. Ricardian theory saw the basis of capitalist land rent in the differing conditions of production in agriculture. These arose because of diminishing returns to capital and labour from cultivation, and scarcity of the best quality land relative to social demand. The need to cultivate poorer quality lands created extensive differential rent (DR I) while intensive differential rent (DR II) arose from the phenomenon that more intensive cultivation of a given plot of land yielded less than proportionate returns to doses of capital and labour. In both cases rents on the various land and capital units were based on the differences between cost of production on these units and that on the least productive (marginal) one. Ricardian theory required that the marginal unit of capital used in cultivation pay no rent, but was compatible with rent being paid on all land under cultivation (because of the possibility of DR II). The margin of cultivation itself was determined by the level of social demand; and rent was seen not as an absolute payment, but always the result of relative scarcity. This rent was based on diminishing returns; but the possibility of technical change did not vitiate it, since it depended on varying conditions of cultivation at one moment in time rather than behaviour of aggregate indices through time. The important point in this context is that Ricardian rent theory did not require the existence of a non-rent-paying unit of land under cultivation. The possibility of DR II allowed for all land under cultivation to pay rent and yet for all rent to be a differential payment, based on the differing produc-


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tivity of various units of capital and labour employed in cultivation. This was explicitly recognised by Ricardo: 'Probably it is true, almost universally, that all appropriated land which yields food in its natural state, always yields a rent, whether cultivated or uncultivated' [Ricardo, 1820: 103ff]. The mechanism whereby rents were equated to differential surplus produced in the Ricardian scheme was clear: competition between capitalist tenant cultivators ensured that each received the average rate of profit, and competition between landowners implied that profits could not fall below this level because of the possibility of capital mobility out of agriculture into other sectors. Ricardian rent theory, even though it originated in a concept of scarcity, fitted into a competitive model of the economy and posed no problems for the theory of value based on that model. One of the most crucial aspects of Ricardo's argument concerning rent was 'that corn which is produced by the greatest quantity of labour is the regulator of the price of corn; and rent does not and cannot enter in the least degree as a component part of its price' [Ricardo, 1817: 77]. Rents were determined by price rather than vice versa. But high agricultural prices were neither a necessary nor sufficient condition for high rents in this scheme. Differential rent was the result of difference in levels of output of different units of cultivation (alternatively of differences in the cost of production of different units) and not of absolute high product prices. Only if a higher product price reflected increased differentials in costs of production would rents increase. This would be possible, given a constant state of technology, if the demand for agricultural output increased, resulting in a price increase which made a less efficient cultivation technique, or extension of cultivation.2 The theory of differential rent was adopted not only by Ricardo's followers [James Mill, 1844: 29-39- McCulloch, 1828, Vol. Ill: 101-24] but by most of the major subsequent economists in the nineteenth century, such as John Stuart Mill. It rapidly achieved the status of an orthodoxy, in spite of the objections of Richard Jones [1831:185-329] and Thomas Hopkins [1828] among others. Richard Jones' rejection of the theory of differential rent was based on a misunderstanding of the concept of diminishing returns, for he argued that technological progress in agriculture vitiated the possibility of diminishing returns [Jones, 1831: 227-305]. His own argument left him open to the accusation that he believed that 'the whole world might be fed out of the Isle of Wight or out of Grosvenor Square' [Edinburgh Review, 1831: 95]. Jones offered instead what was essentially a monopoly theory of rent determination but did not formulate it clearly. An extreme monopoly theory was to be found in the work of Hopkins, who claimed that 'there is no natural limit to the discretionary exaction of rent, but the absolute impossibility of furnishing it ... capitalists and labourers are, therefore, jointly dependent on the discretion of land-proprietors' [Hopkins, 1828: vi-vii].


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III. MARX'S THEORY OF RENT

Marx's treatment of 'ground rent' combined both the Ricardian rent theory and elements of a monopoly theory, finding expression in the concept of absolute rent. With some minor modifications, Marx's statement on differential rent was similar in essentials to the Ricardian theory. However, he also introduced another 'form' of payment, which he argued was an integral part of total rent. Thus he added to the possibility of differential rent, the further payment of absolute rent. He pointed out that with differential rent, landed property 'merely intercepts the surplus-profit which would otherwise flow into the pocket of the farmer', [Marx, Capital, III, 1954: 755] but landed property itself creates the other form of rent, an absolute payment. He argued that the possibility of existence of no-rent land implied the elimination of landownership, 'and landed property as a limitation continues to exist even when rent in the form of differential rent disappears' [Marx, Capital, III, 1954: 751]. Absolute rent was thus seen as a monopoly exaction resulting from private landownership, a category specific to the nature of landholding. The concept of absolute rent created a number of analytical problems, foremost of which were what determined the level of absolute rent; and how this could be integrated with Marx's value theory, which argued that the exchange values of commodities were determined by the amount of labour embodied in them, and not by scarcity or monopoly. Thus, if rent is a monopoly charge, then the limits to the rent are not defined; and if rent is paid on the marginal unit of capital in cultivation, then it must also enter the agricultural product price. Marx attempted to deal with both problems together, and thus to find a definitive limit to monopoly rent extraction. His answer was in terms of the relationship between exchange value (based on labour embodied) and price (based on cost of production), and of the differing organic compositions of capital in the various sectors. Marx argued, firstly, that the organic composition of capital in agriculture was in general lower than the social average - an expression of the relatively lower degree of agricultural development as compared with manufacturing industry. Thus, 'a capital of a certain size in agriculture produces more surplus value ... than a capital of the same size of average social composition' [Marx, Capital, III, 1954: 760]. However, this in itself was not sufficient to explain ground rent, for there could be, in Marx's scheme, a number of industries whose organic composition of capital is below the social average, and yet who do not pay rent. Marx thus brought in the fact of landownership, which acts as 'the barrier which does not permit any new investment of capital in hitherto uncultivated or unrented land without levying a tax' [Marx, Capital, III, 1954: 762]. The ability of landed proprietors to levy this tax thus depended on the leasing out of newly rented or additional land to capitalist cultivators who would have to pay this 'tax' in order to gain control of the land. It did not apply to previously rented holdings, when presumably the additional absolute payment had been incorporated in the


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original lease contract. Here Marx's theory faced the first problem: as Marx admitted, one limit to absolute rent is the possibility of additional investments of capital in old-rented leaseholds. But this very possibility effectively negates the existence of absolute rent, since farmers would make intensive investments on land already leased until the returns from that are equal to the returns from cultivating new land minus rent. This would make all rent, even the payment on new leaseholds, conceptually a differential payment, rather than an absolute one. The nature of capitalist cultivation would ensure that farmers would choose a portfolio of leasing and investment decisions that would maximise profits and therefore effectively ensure that the marginal unit of capital in cultivation paid no rent. This is akin to the Ricardian case of DR II, which (as was discussed above) is perfectly compatible with all land under cultivation paying a ground rent. Positing absolute rent as a once-for-all barrier even while allowing for continued intensive cultivation on the same leasehold meant that, analytically speaking, all rent payments could be seen as differential rent, even if the nature of private property in land ensured that there could not be any no-rent land. Even if the existence of absolute rent were granted, Marx still had to establish the level. 'Owing to the barrier raised by landed property, the market price must rise to a level at which the land can yield a surplus over the price of production ... this rent forms the excess of value over price of production, or a part of it' [Marx, Capital, III, 1954: 762]. That is, unlike other commodities, the agricultural commodity is sold at its value, and because this is greater than the price of production, the difference allows for the existence of absolute rent. Marx explained absolute rent in terms of two differing forces: the existence of private property in land and the lower organic composition of capital in agriculture. But there is no reason why the two should necessarily be found simultaneously, nor why they should separately operate to create exactly similar levels of absolute rent. A related problem is that there is no reason why agricultural products should exchange at their value. If the rent is indeed a monopoly price, what limits it to the excess of value over price of production? Marx admitted the existence of a supply-demand mechanism which could result in agricultural prices selling below their values: 'Whether the rent equals the entire difference between the value and the price of production, or only a greater a lesser part of it, will depend wholly on the relation between supply and demand and on the area of land newly taken under cultivation' [Marx, Capital, HI, 1954: 762-3]. But then what determines value as the ceiling for the rise in rents? Marx suggested that international trade would provide such a limit. International trade would set constraints on the 'monopoly' price of agricultural commodities, but once again, there is no reason why such constraints should coincide exactly with the domestic value (in terms of embodied labour time) of the commodity. Thus Marx was unable satisfactorily to explain the existence or determination of absolute rent.


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IV. SOME MARXIST INTERPRETATIONS

It is worth considering some recent Marxist attempts to deal with the problems created by absolute rent. Recently, Robin Murray [Murray, 1977: 100-22; 1978: 11-33] has attempted to re-assert the validity of Marx's formulation, and to answer the question of why rent is limited by the value of the agricultural product. First, he suggested international trade, as did Marx. The difficulty with this solution has been discussed above: essentially, there is no reason why the pattern determined by international trade should be such that the agricultural price (presumably determined by the import price in this case) should equal the domestic labour-embodied value of the agricultural product. Second, Murray put forward the proposition that 'agricultural commodities originally exchanged at their values, and landed property has always barred capital's inflow ... the immobility of capital - that particular limitation on competition - is a condition rather than a hindrance for commodities to be exchanged at their values' [Murray, 1977:110]. Here it is not clear when the 'original' exchange of commodities took place, why they exchanged at value, and the relation of rents to this. If the intended meaning is that pre-capitalist commodity exchange took place on the basis of labourembodied values, then Murray's argument is only valid as long as capitalist relations do not dominate rural cultivation. In that case, absolute rent is not a capitalist payment but a pre-capitalist one, and there is correspondingly no need to attempt to integrate it with a theory of capitalist exchange values based on prices of production. This is indeed the implicit approach of Utsa Patnaik (see below) as also the explicit approach of this article, but it does not appear to be Murray's own argument. Rather, Murray attempts to explain absolute rent in purely capitalist terms, which is what makes his solutions problematic. Within his scheme, he is able to provide no convincing reason as to why the agricultural commodity should exchange at its value, why this value should inevitably be greater than the price of production, or why the difference should form land rent. An alternative way of approaching the problem was that of Emmanuel [1972: 205-26] who recognised the difficulties with Marx's explanation, and sought instead to treat absolute rent simply as a monopoly price. Emmanuel pointed out that if it were assumed that economic reality is perfectly continuous and there is perfect competition between landowners, then absolute rent would to all intents and purposes disappear, since the differences between the prices of production on the two plots of land around the margin would be so little as to be practically negligible. But Emmanuel did accept the possibility of absolute rent, simply because of the discontinuous nature of economic functions, and sought to explain it through theories analogous to those for imperfect competition and monopoly in manufacturing industry - such as the tendency on the part of landowners to wait, lack of information, etc. The problem is that these theories do not easily adapt themselves to agricultural production. The fundamental significance of land in cultivation


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is that it is a non-reproducible means of production, unlike capital goods which can be reproduced, albeit with a greater or lesser time lag. The explanation of absolute rent must rely on more than simply the discontinuity in the demand and supply functions for land-lease, but Emmanuel does not provide an alternative to this. Utsa Patnaik [1976, 1983] has recently put forward an argument which relates absolute rent to pre-capitalist rent and sees it as a barrier to capitalist development. Following from Marx, she suggested a mechanism whereby high levels of pre-capitalist rent create a barrier for agricultural investment, simply because capitalist cultivators would have to get, as a return for such investment, both the required rental and the normal profits. Patnaik also maintained that this barrier is not once-for-all, but moving: The level of pre-capitalist rent itself will not remain static but will tend to rise with a lag. Petty producers vying for land on lease will be obliged to jack up rent payments. This they can do by trying to apply the new inputs to the extent possible in their straitened circumstances, on the basis of funds borrowed from others - usually at high interest [Patnaik, 1976: A100]. For Patnaik this implied the levelling off and even the decline of productive capitalist investment, once the potential of a given complex of technical changes had been realised. In the following section it will be argued that this is true only under certain very restrictive conditions, so that the barrier created by absolute rent need not be a moving one. V. ABSOLUTE RENT AND THE TRANSITION TO AGRARIAN CAPITALISM

It is evident that the concept of absolute rent fits at best uneasily within the analytical framework of agrarian capitalism. It is argued here that DRI and DR II adequately cover explanations of land rent in purely capitalist agricultures. The concept of absolute rent, by contrast, is best utilised not as one integrated with the theory of capitalist agriculture, but as an important element in the transition to capitalism or where capitalist cultivation coexists with peasant farming for subsistence. This interpretation involves an unorthodox treatment of absolute rent as essentially pre-capitalist rent, determined by the relative bargaining power of landlords and tenants, rather than as a residual after the determination of wages and profits. The starting point is Marx's proposition that private property in land confronts capital in its historical development, so that capital must come to terms with it or be limited by it in some way. For Marx, the form of landed property was basically antagonistic to capital. Although capital could subject agriculture to the conditions of capitalist production, it could not prevent a separate class of monopolistic owners from continuing to exist and to confront capital as a barrier to greater investment. This limitation was due not only to the fact that rent was a deduction from total surplus value and thus resulted in a lower rate of profit on investment (by lowing the share of



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profits in total surplus), but also, and more importantly, to the obstruction to investment created by the need to pay rent. This need would require, for every additional investment to be worthwhile to the capitalist, a rate of return sufficient to pay the rent (including absolute rent) and give the normal rate of profit on capital. Absolute rent in particular was seen as relevant in creating this barrier. Marx [Capital, III, 1954: 751-3] described three cases where landed property and absolute rent need not be barriers to capitalist cultivation: (1) When the landlord is himself a capitalist farmer - the case of ownercultivators. But this was not a valid exception, since the landlord still would have the option of renting out the land and investing his capital elsewhere; (2) When, within the total area of a leasehold, there are some portions which do not yield any rent, but since this rent is paid on the whole piece of land, this passes unnoticed. With this example Marx reverted back to considering differential rent only, for with absolute rent by definition there could be no land that did not pay rent; (3) When the investment of additional capital in one leasehold yields only the prevailing rate of profit but no ground rent. Here Marx admitted that the limitation placed by landed property on the investment of capital is limited for the duration of the lease. But this was tantamount to admitting that all rent is a differential payment, since it would be to the cultivator's interest to cultivate intensively on a given piece of land until the marginal capital investment paid no rent. Marx's 'exceptions' to the rule served rather to undermine the basis of the law as he formulated it. Nevertheless, he did have an important insight into the way rent and tenurial relations acted as constraints on investment in agriculture and consequent economic growth. With some modifications, his theory can prove useful to the analysis of agricultures in transition to capitalism. One possible version using a modification of this argument is presented here. If the agricultural system into which capital is entering were characterised predominantly by non-cultivating landowners and cultivating tenants, then there would exist a given structure of rent rates, forms of rental payment, etc. Capitalist tenant farmers in a non-segmented competitive lease market would have to pay at least as much rent per acre as existing peasant tenants. However, capitalist farmers would have to make rent payments out of a surplus of output value over costs and normal profits, whereas peasant tenants cultivating for a livelihood would not face such a condition but seek merely to retain their necessary consumption. This implies that output or returns over cost per acre would have to be higher on capitalist farms. Thus absolute rent would constitute a barrier to capitalist investment, by specifying the need to have a higher level of profitability (and thus productivity) on capitalist farms, due to competition for leased land from peasant tenants. As the expansion of capital continued and possibly squeezed out completely the peasant tenants, and forced them to become primarily rural proletarians, the barriers posed by the prevailing pre-capitalist rent rates would no longer be significant for tenant farmers. Therefore, as capitalism extended its hold on the countryside, and enabled greater productivity in

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cultivation through technical progress and shifts in the organic composition of capital in this sector, the relevance of pre-capitalist (absolute) rent would tend to decline until it would no longer be a quantifiable element of rent. This is one way in which Marx's statement of the dependence of absolute rent on the relative development of agriculture compared with industry, could be interpreted. If the composition of capital in agriculture proper is lower than that of the average social capital, then,prima facie, this expresses the fact that in countries with developed production agriculture has not progressed to the same extent as the processing industries ... it is an indubitable and long-known fact that the progress of agriculture itself is constantly expressed by a relative growth of constant capital as compared with variable capital Wherever this assumption [of lower organic composition of capital in agriculture - JG] no longer holds, the corresponding form of rent likewise no longer holds [Marx, Capital, III, 1954: 759-60] Treating absolute rent as a pre-capitalist payment requires a separate theory of its determination. Although the question is too broad to be dealt with adequately within the course of this article, some pointers towards a theory may be suggested. It is argued here that peasant rents are determined by the relative bargaining power of landlords and tenants, which in turn is significantly affected, on a macro-economic scale, by the degree of relative population pressure (that is, population relative to available alternatives for employment or livelihood). Some of the essential features of peasant rents are thus: a direct, positive relationship with relative population pressure, a negative association with wages and the demand for rural labour, and indirect but positive relationships with movements in rural product prices, possibilities for credit involvement and the potentially constraining role played by state agrarian policies. Rent changes need not always indicate economic relations between landlords and tenants: they could reflect changes in the distribution of the rural surplus between non-cultivating classes, such as landlords, traders and creditors. Peasant rents are limited by a ceiling determined by the minimum physiological requirements of peasants (given stagnant output). This can be transgressed for short periods but the long-run constraint holds. Below this limit, rents are determined by the dynamic behaviour of population, the labour market and the agricultural product market. Here it is argued that rents are a barrier to agricultural investment in two important ways. First, they involve the extraction of potentially investible surplus from those who control the production process. Second, they posit floors of productivity and profitability which viable cultivating units must achieve if they are to invest and to receive the socially average rate of profit. However, once these barriers are overcome, they do not continue to constrain investment except under certain conditions, discussed below. Rather, in periods of rapid growth and change in agriculture, tenurial conditions are



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themselves transformed. Sharecropping contracts in particular may be very adaptable to changing conditions, and are not more inhibitive of investment than any other rental form. Since in a stagnant non-capitalist agriculture, prevailing peasant rents are typically very high and tend to appropriate the bulk of the rural surplus under the existing technology, capitalist cultivation or investment in cultivation will only take place if one of the following conditions is fulfilled: (1) Such investment incorporates a change in cultivating techniques such that capitalist farms are more productive per unit of investment than peasant farms; (2) Capitalist farms have superior access to the product market, or to the market for monetised intputs, or to subsidised credit, which gives them a higher value rate of return than that prevailing on peasant farms; (3) The land-lease market is segmented by (a) traditional criteria; (b) legal criteria; (c) operational difficulties in rent collection, as when at least some of the differential rent (DRI) resulting from superior fertility or access to irrigation is not incorporated into the competitive rent rates. Such segmentation would allow some (possibly capitalist farmers) to pay lower rent rates than others and thus retain more of the surplus as profit. It has been argued [Patnaik, 1976, 1983] that rents provide not just an initial barrier but a moving one, as rents continue to rise due to increased competition for leased land. But this will hold only if the rate of rent increase outstrips the proportionate increase in the rate of profit from cultivation. There are several reasons why such a condition need not hold. In a dual landlease market the demand for leased land comes from both capitalist and peasant tenants. Capitalist farmers will not bid up rents high enough to cut into expected minimum profits. And the extent to which peasant rents can rise, with stagnant output, is limited by the physiological consumption minimum in the long run, and by the social consumption norm in the short run. Peasant tenants who attempt to increase their rent payments by increasing output, using credit to bring in new cultivation techniques, are likely to be constrained by inferior access to credit, input and product markets, possible economies of scale (especially with capital intensive techniques or irrigation), lack of assets to bear risk, etc. Also, in so far as the techniques embodied in investment are land-augmenting, they increase the demand for labour. By providing an alternative income for peasant tenants, this may have the effect of reducing their demand for leased land as a source of livelihood, or reducing their willingness to pay higher rents. Peasant tenants do not disappear altogether with the advent of capitalist farming, simply because of their ability to lower consumption levels, to increase their labour input and sometimes also the input of other variable inputs, in order to cling to their tenancies for economic survival. This interpretation of absolute rent is by no means uncontroversial. Nevertheless, it is intended not as a faithful rendering of Marx's original meaning but as an attempt to give the concept some operational significance in analysing agrarian economies which are experiencing or have experienced a transition to the capitalist organisation of agriculture. To that extent,


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actual textual discussions of the concept may be less relevant than its applicability in economic or historical analysis. The agrarian economy of the United Provinces in north India in the colonial period provides an example of such an application (see Ghosh [1983]). While presenting on one level a picture of continuing stagnation as, for example, in crop yields and in the poverty of the great mass of the peasantry - there were also important changes (usually externally generated), especially in the substantial extension of transport links throughout the province and canal irrigation primarily in the western districts. These contributed to the growing commercialisation of agricultural production. The basis stability of the land-holding and tenurial structure did not rule out the gradual differentiation of the peasantry. But the period from the middle of the nineteenth century to just before Independence in this area was marked by high and growing population pressure along with no significant growth of employment opportunities either in the villages or in the towns. Rents were determined competitively, and there was a significant increase in rental demand throughout the area from the 1860s to the 1930s. Nevertheless there were important regional variations. The more dynamic region was the west, which saw not only the bulk of the public investment in canal irrigation, but also the incipient growth of capitalist cultivation by a section of the peasantry. A number of factors operated to overcome the barriers set by high absolute pre-capitalist rent here: the increased profitability of cultivation resulting from commercialisation, the growth of the export market and the secular rise in product prices from 1870 to 1930; the operation of state legislation which created a category of legally privileged (occupancy) tenants who could pay substantially lower rent rates than those competitively prevailing; and the growing importance of DR I resulting from irrigation and transport networks, not all of which was incorporated into the competitive rent rates. Conversely, in the eastern districts none of these forces was sufficiently strong to overcome the initial barrier posed by absolute rent. Consequently there was very little investment in cultivation and this region remained very poor and agriculturally backward.

NOTES 1. The concept of a 'dose' was first used by Jevons [Jevons, 1871]. It is, however, implicit in Ricardo, when he wrote of the 'application' of capital. 2. Although Ricardo's exposition of differential rent theory was the most coherent explanation of capitalist land rent in the nineteenth century, it contained several lacunae towards which some recent work has been directed. Within the Ricardian framework, Sraffa [Sraffa, 1960: 74-80] has shown that rents, or the ordering of lands of differing fertility and production techniques of varying efficiency, are determined not technologically but economically. In other words, rents in the Sraffian system are not a physical output category but a distributive value category reflecting changes in distribution (the wage-profit nexus). It was pointed out, by Montani [1975] and Quadrio-Curzio [1980] that fertility rankings of land (the situation of extensive differential rent) need not coincide with the ranking of land by rent per acre, even


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in an internally consistent system. Kurz [1978] showed that when all land is of the same quality, intensive differential rent can affect distribution directly because of the possibility of multiple equilibria with different rent rates. In this special case rent can affect wages, profits and relative product prices, even though the essentials of the Ricardian system are maintained.


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Sraffa, Piero, 1960, Production of Commodities by Means of Commodities, Cambridge: Cambridge University Press. Tribe, Keith, 1978, Land, Labour and Economic Discourse, London: Routledge & Kegan Paul. West, Sir Edward, 1915, An Essay on the Application of Capital Land, London, reprinted 1934, Baltimore: Johns Hopkins University Press.