Workers Vanguard No. 1076
16 October 2015
From the Archives of Marxism
Karl Marx by V.I. Lenin
We print below the fourth installment of “Karl Marx” by Lenin. The earlier parts, which gave a sketch of Marx’s life and an overview of his philosophical and economic doctrines, were published in WV Nos. 1073-1075 (4 and 18 September and 2 October). This selection continues the explanation of Marxist economics, including its critique of private ownership of land.
Volume Three of Capital solves the problem of how the average rate of profit is formed on the basis of the law of value. The immense stride forward made by economic science in the person of Marx consists in his having conducted an analysis, from the standpoint of mass economic phenomena, of the social economy as a whole, not from the standpoint of individual cases or of the external and superficial aspects of competition, to which vulgar political economy and the modern “theory of marginal utility” frequently restrict themselves. Marx first analyses the origin of surplus value, and then goes on to consider its division into profit, interest, and ground rent. Profit is the ratio between surplus value and the total capital invested in an undertaking. Capital with a “high organic composition” (i.e., with a preponderance of constant capital over variable capital in excess of the social average) yields a rate of profit below the average; capital with a “low organic composition” yields a rate of profit above the average. Competition among capitalists, and their freedom to transfer their capital from one branch to another, will in both cases reduce the rate of profit to the average. The sum total of the values of all the commodities in a given society coincides with the sum total of the prices of the commodities, but, in individual undertakings and branches of production, as a result of competition, commodities are sold, not at their values but at the prices of production (or production prices), which are equal to the capital expended plus the average profit.
In this way, the well-known and indisputable fact of the divergence between prices and values and of the equalisation of profits is fully explained by Marx on the basis of the law of value, since the sum total of values of all commodities coincides with the sum total of prices. However, the equating of (social) value to (individual) prices does not take place simply and directly, but in a very complex way. It is quite natural that in a society of separate producers of commodities, who are united only by the market, a conformity to law can be only an average, social, mass manifestation, with individual deviations in either direction mutually compensating one another.
A rise in the productivity of labour implies a more rapid growth of constant capital as compared with variable capital. Inasmuch as surplus value is a function of variable capital alone, it is obvious that the rate of profit (the ratio of surplus value to the whole capital, not to its variable part alone) tends to fall. Marx makes a detailed analysis of this tendency and of a number of circumstances that conceal or counteract it. Without pausing to deal with the extremely interesting sections of Volume Three of Capital devoted to usurer’s capital, commercial capital and money capital, we must pass on to the most important section—the theory of ground rent. Since the area of land is limited and, in capitalist countries, the land is all held by individual private owners, the price of production of agricultural products is determined by the cost of production, not on soil of average quality but on the worst soil; not under average conditions but under the worst conditions of delivery of produce to the market. The difference between this price and the price of production on better soil (or in better conditions) constitutes differential rent. Analysing this in detail, and showing how it arises out of the difference in fertility of different plots of land, and out of the difference in the amount of capital invested in land, Marx fully reveals (see also Theories of Surplus Value, in which the criticism of Rodbertus is most noteworthy) the error of Ricardo, who considered that differential rent is derived only when there is a successive transition from better land to worse. On the contrary, there may be inverse transitions, land may pass from one category into others (owing to advances in agricultural techniques, the growth of towns, and so on), and the notorious “law of diminishing returns,” which charges Nature with the defects, limitations and contradictions of capitalism, is profoundly erroneous. Further, the equalisation of profit in all branches of industry and the national economy in general presupposes complete freedom of competition and the free flow of capital from one branch to another. However, the private ownership of land creates monopoly, which hinders that free flow. Because of that monopoly, the products of agriculture, where a lower organic composition of capital obtains, and consequently an individually higher rate of profit, do not enter into the quite free process of the equalisation of the rate of profit. As a monopolist, the landowner can keep the price above the average, and this monopoly price gives rise to absolute rent. Differential rent cannot be done away with under capitalism, but absolute rent can—for instance, by the nationalisation of the land, by making it state property. That would undermine the monopoly of private landowners, and would mean the more consistent and full operation of freedom of competition in agriculture. That is why, as Marx points out, bourgeois radicals have again and again in the course of history advanced this progressive bourgeois demand for nationalisation of the land, a demand which, however, frightens most of the bourgeoisie, because it would too closely affect another monopoly, one that is particularly important and “sensitive” today—the monopoly of the means of production in general. (A remarkably popular, concise, and clear exposition of his theory of the average rate of profit on capital and of absolute ground rent is given by Marx himself in a letter to Engels, dated August 2, 1862. See Briefwechsel, Vol. 3, pp. 77-81; also the letter of August 9, 1862, ibid., pp. 86-87.)
With reference to the history of ground rent it is also important to note Marx’s analysis showing how labour rent (the peasant creates surplus product by working on the lord’s land) is transformed into rent paid in produce or in kind (the peasant creates surplus product on his own land and hands it over to the landlord because of “non-economic constraint”), then into money-rent (rent in kind, which is converted into money—the obrok [quit rent] of old Russia—as a result of the development of commodity production), and finally into capitalist rent, when the peasant is replaced by the agricultural entrepreneur, who cultivates the soil with the help of hired labour. In connection with this analysis of the “genesis of capitalistic ground rent,” note should be taken of a number of profound ideas (of particular importance to backward countries like Russia) expressed by Marx regarding the evolution of capitalism in agriculture. “The transformation of rent in kind into money-rent is furthermore not only inevitably accompanied, but even anticipated, by the formation of a class of propertyless day-labourers, who hire themselves out for money. During their genesis, when this new class appears but sporadically, the custom necessarily develops among the more prosperous peasants, subject to rent payments, of exploiting agricultural wage-labourers for their own account, much as in feudal times, when the more well-to-do peasant serfs themselves also held serfs. In this way, they gradually acquire the possibility of accumulating a certain amount of wealth and themselves becoming transformed into future capitalists. The old self-employed possessors of land themselves thus give rise to a nursery school for capitalist tenants, whose development is conditioned by the general development of capitalist production beyond the bounds of the countryside” (Capital, Vol. III, p. 332). “The expropriation and eviction of a part of the agricultural population not only set free for industrial capital, the labourers, their means of subsistence, and material for labour; it also created the home market” (Capital, Vol. I, p. 778). In their turn, the impoverishment and ruin of the rural population play a part in the creation, for capital, of a reserve army of labour. In every capitalist country “part of the agricultural population is therefore constantly on the point of passing over into an urban or manufacturing [i.e., non-agricultural—Lenin] proletariat.... This source of relative surplus population is thus constantly flowing.... The agricultural labourer is therefore reduced to the minimum of wages, and always stands with one foot already in the swamp of pauperism” (Capital, Vol. I, p. 668). The peasant’s private ownership of the land he tills is the foundation of small-scale production and the condition for its prospering and achieving the classical form. But such small-scale production is compatible only with a narrow and primitive framework of production and society. Under capitalism the “exploitation of the peasants differs only in form from the exploitation of the industrial proletariat. The exploiter is the same: capital. The individual capitalists exploit the individual peasants through mortgages and usury; the capitalist class exploits the peasant class through the state taxes” (The Class Struggles in France). “The small holding of the peasant is now only the pretext that allows the capitalist to draw profits, interest and rent from the soil, while leaving it to the tiller of the soil himself to see how he can extract his wages” (The Eighteenth Brumaire). As a rule the peasant cedes to capitalist society, i.e., to the capitalist class, even a part of the wages, sinking “to the level of the Irish tenant farmer—all under the pretence of being a private proprietor” (The Class Struggles in France). What is “one of the reasons why grain prices are lower in countries with predominant small-peasant land proprietorship than in countries with a capitalist mode of production”? (Capital, Vol. III, p. 340.) It is that the peasant hands over gratis to society (i.e., the capitalist class) a part of his surplus product. “This lower price [of grain and other agricultural produce—Lenin] is consequently a result of the producers’ poverty and by no means of their labour productivity” (Capital, Vol. III, p. 340). Under capitalism the small-holding system, which is the normal form of small-scale production, degenerates, collapses, and perishes. “Proprietorship of land parcels, by its very nature, excludes the development of social productive forces of labour, social forms of labour, social concentration of capital, large-scale cattle raising, and the progressive application of science. Usury and a taxation system must impoverish it everywhere. The expenditure of capital in the price of the land withdraws this capital from cultivation. An infinite fragmentation of means of production, and isolation of the producers themselves.” (Co-operative societies, i.e., associations of small peasants, while playing an extremely progressive bourgeois role, only weaken this tendency, without eliminating it; nor must it be forgotten that these co-operative societies do much for the well-to-do peasants, and very little—next to nothing—for the mass of poor peasants; then the associations themselves become exploiters of hired labour.) “Monstrous waste of human energy. Progressive deterioration of conditions of production and increased prices of means of production—an inevitable law of proprietorship of parcels.” In agriculture, as in industry, capitalism transforms the process of production only at the price of the “martyrdom of the producer.” “The dispersion of the rural labourers over larger areas breaks their power of resistance, while concentration increases that of the town operatives. In modern agriculture, as in the urban industries, the increased productiveness and quantity of the labour set in motion are bought at the cost of laying waste and consuming by disease labour power itself. Moreover, all progress in capitalistic agriculture is a progress in the art, not only of robbing the labourer, but of robbing the soil.... Capitalist production, therefore, develops technology, and the combining together of various processes into a social whole, only by sapping the original sources of all wealth—the soil and the labourer” (Capital, Vol. I, end of Chapter 13).
[COMING UP NEXT: SOCIALISM]