GENERALLY SPEAKING, commodities sell at their price of production. This is calculated by the amount of the total capital involved in their production - constant capital (machinery, materials, etc.); variable capital (wages); plus a profit. Through the action of competing capitals an average rate of profit is formed, and all capitals, usefully employed,whatever the field of investment, will generally obtain the average.
This means that the range of goods produced by these capitals will sell
at average prices appropriate to their classification as use-values.
For instance, similar-quality bread produced by one baker would not
alter dramatically in price from that of another baker, although their
individual prices of production may be different. The amount of profit
is the difference between the cost of production and the average price
of production, which is not determined by individual prices, but by a
socially determined price based on socially necessary labour which
regulates the market, Socially necessary labour is not measured industry
It should be borne in mind that no capitalist manufacturing concern by
itself produces commodities or value; products only become commodities
when they come into contact with other commodities which provide their
social equivalent. This means they all contain social labour - the
labour of society. The individual labour which has gone into the
production of groups of commodities forms part of the social labour. The
value of commodities is determined by the amount of social labour,
measured in time, and they exchange with one another according to the
amount or proportion of this social labour vested in them. It is not
individual producers who determine the proportion, but society
generally. The realization of the market price (value) of a commodity
depends purely on social interaction without regard to the nature of the
commodities, whether they be agricultural products, motor cars,
pig-iron or coal.
Commodities can only average this price of production with reference to
the whole field of commodities, and the total social capital, and
cannot realize their price of production in groups isolated from other
groups. If we assumed that all commodities sell at their price of
production, and that all capitals secured the average rate of profit,
there would be no rent available for the landlord. As land in itself
does not form part of the social cost of production, it cannot have any
influence on the rate of profit. Therefore, rent must come from a profit
over and above the average rate of profit - in effect a surplus profit.
The individual cost of production for most capitalists within
particular industries are generally the same, pro rata to the capital
invested. The larger firms may be more efficient, although this is not
always the case. Wage rates are regionally and nationally determined,
and the cost of materials, machinery, etc. and the other elements of
constant capital are similar. This will establish a general average cost
Let us assume that a few factories within a certain country, because of
their location are able to drive their machinery with the use of
natural hydro power, whereas the great majority of other factories have
to use electricity in the production of their commodities. Suppose that
for every £100 unit of capital expended the factories using electricity
make a profit of £15. The average price of production of the commodities
in that case would be £115. (We are ignoring for the moment any
temporary fluctuation of the market or any other accidental factors.)
Assume that the factory using water power could produce the same
quantity of commodities in the same time, but that instead of using a
unit of £100 capital they need only use a unit of £90, because the water
power was provided by a natural force, and not having to buy
electricity they managed to save £10, this brings their production costs
down to the £90 referred to above.
In effect, through the use of this force they were able to produce the
same amount of commodities with less capital. In the normal way their
commodities would contain less value than those of the capitalists using
electricity, because less social labour was involved in their
production. But the average price of production is based on the
socially-necessary labour of the whole of society, not of individual
factories. The majority of factories using electricity determine the
price of production, because all commodities can only realize their
value by acting as equivalents to each other over the whole field of
commodity production, and not in separate compartments.
Individual industries do not produce commodities as value; it is
society at large which creates the commodity form (e.g. a tailor
produces a coat. He does not produce the exchange-value of a coat - that
is socially determined.) The capitalist using water power, would,
therefore, be able to sell his commodities at an average price of
production, i.e. £115 - the same as the others. In that case, he would
receive a surplus of £25 per unit of capital, an excess of £10 over all
the other capitalists who had to buy electricity. This is a surplus
profit; a profit over and above the average rate of profit, and this
fact directly arises because the conditions under which he used his
capital were more favourable; his exclusive use of the natural force
denied to other capitalists, and which
could not be reproduced by them and consequently was not at their
command. Capital can reproduce electricity at will, but you cannot
reproduce a natural waterfall or the land upon which it flows.
In the same way, capital cannot reproduce land, and therefore the
landowner holds a position of monopoly. In the final reckoning, the
surplus profit of the capitalist using water power was due entirely to
this force - something which had no value because no labour had entered
into its production, as with all natural power. The labour of harnessing
this natural power would add value, and this is taken into account.
Nevertheless, the cost of harnessing and supplying electricity has been
shown to be greater, and it is this difference in cost which constitutes
the surplus profit.
Inevitably the owner of the land over which the river or waterfall
flowed would require payment for permission for the use of the land
which contained the natural force, otherwise he would forbid its use. If
the capitalist were to part with the surplus profit of £10 out of the
£25, he had received, to the landowner that would constitute a ground
rent. He would have, in effect, transferred his surplus profit to the
landlord. At the end of the day he would have earned a profit of £15,
the same as the body of capitalists who used electricity. If he owned
the land it would make no difference to the formation of the ground
rent. In that case he would retain the surplus profit of £10 in his
capacity as landlord and not as an industrial capitalist, because the
surplus profit was not due to
his capital as such but to a natural force which he has monopolized. It
is evident that any capitalist who is able to use ( a natural force
based on land, whether it be hydro power, naturally fertile land,
natural pasture-land, Iand( where the climate is more favourable, and
other natural attributes, will be able to cut down his production cost
below that of his fellow capitalists who are no in a similar position.
He will always be in a position of earning a surplus profit
over the average rate o1 profit, which he transfers to the landlord by
way of ground rent for permission to use the land in question.
Agriculture and mining dominate the use of land The degree of fertility
of the soil and the potential mineral wealth will determine the amount
of rent But the existence of rent is due to the use of the land itself.
There is an erroneous view held by the Labour Party and other left -wing
parties that if you nationalize land you abolish rent. In fact, at no
time has any Labour government taken any action to abolish ground rent.
The object of the present Land Nationalization Bill is to curtail by
taxation the profits of the landlords the price of whose Land( has risen
because of planning and other consents - external factors. In other
words, an attempt to prevent landowners from consuming the whole fruit:
of social progress instead of sharing it with their brother capitalists
whose interests are represented by the State.
This makes no difference at all to the formation of ground rent, nor
would it make any difference if all ground rent were paid to the State.
It would mean that all land was owned by the State and has been taken
from the private owners. How this came to pass, whether by
nationalization with compensation or by confiscation does not matter. In
point of fact, the State is inevitably the largest land lord in any
country, and the State is the embodiment of all capitalists' interests.
As the total amount of agricultural land in England and Wales is 27.2
million acres (Min. of Agriculture statistics 1972), tenant farmers
alone pay an average of £260 millions rent annually for the use of the
13.6 million acres. The formation of rent over the whole 27.2 million
acres would amount to approx. £540 million by present rent levies.
Practically the whole of London is in the hands of ground landlords,
both public and (very) private family trusts.
The colossal amount of wealth which is appropriated annually in rent
comes solely from the surplus value produced by the working class. Every
advance in agricultural science, every intensification of the use of
land, is of direct benefit to those parasites who have literally
inherited the earth. In the same
way, every advance in technology and science generally is appropriated for the benefit of their industrial capitalist brethren.
If human rights mean anything, they mean the right of every man, woman
and child to the best possible existence society can provide. Freedom
from paying rent, selling labour-power, and producing surplus value for a
wealthy group of international idlers.
Capitalist society simply cannot cope with the multifarious social
problems which it has created because of the restrictive social
relations which hold it together. Socialism is an urgent necessity, and
working men and women everywhere must devote their thoughts and energies
to its establishment through the Socialist Party of Great Britain.
From Socialist Standard No. 848 April 1975
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