Political Economy -circulation of money

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Circulation of Money
XIII. Loan Capital and Loan Interest. Circulation of Money

Just as commodity capital becomes separated off in the form of merchant capital, money capital becomes separated off as loan capital.

In the process of the turnover of capital the industrial capitalist finds himself from time to time with spare capital for which he can discover no application in his business. For instance, when a capitalist accumulates a depreciation fund intended for restoring the worn-out parts of his fixed capital, he temporarily assembles spare sums of money. These sums will be spent on purchasing new equipment and machinery only after the lapse of several years. If the manufacturer sells finished products every month but buys raw material only, once in six months, he has spare money at his disposal for five months. This is inactive capital, i.e., capital which is not bringing in any profit.

At other times the capitalist finds himself in need of money, e.g., when, though he has not yet managed to dispose of his finished goods, he needs to buy raw material. At the very moment when one entrepreneur has a temporary surplus of money capital, another has need of it. In their hunt for profit the capitalists strive to ensure that each particle of their capital brings them in income. The capitalist lets out his spare money on loan, i.e., for temporary use by other capitalists.

Loan capital is money capital which its owner allows another capitalist to use for a period in return for a definite consideration. The distinctive feature of loan capital is that it is used in production not by the capitalist who owns it but by others. When he is able to borrow money, an industrial capitalist is freed from the necessity of keeping substantial reserves of money in an inactive state. A loan of money enables a manufacturer to extend production and increase the number of workers he employs, and, consequently, to increase the amount of surplus-value he obtains.

As consideration for the money capital of which he is allowed to dispose, the manufacturer pays the owner of this capital a certain sum which is called interest. Interest is the part of his profit which the industrial capitalist yields to the lending capitalist in return for being granted a loan by him. Loan capital is capital which brings in interest. The source of interest is surplus-value..

The movement of loan capital is wholly based on the movement of industrial capital. Capital granted on loan is used in production, for the purpose of increasing surplus-value. Loan capital, therefore, like all capital generally, expresses first and foremost the production relations between the capitalists and the workers exploited by them. At the same time loan capital in particular reflects the relations between two groups of capitalists: on one side the money capitalists and on the other the functioning capitalists (manufacturers and merchants)..

The formula of motion of loan capital is: M-M’. Here, not only the stage of productive capital but also of merchant capital is missing. The impression is created that the source of income is not surplus-value, produced by exploiting the workers in the sphere of production, but money by itself. The fact that loan capital brings in income in the form of interest appears to be as natural a property of money as the bearing of fruit is of a fruit tree. Here the fetishism characteristic of capitalist relations attains its farthest limit.

The owner of money capital places his capital for a period at the disposal of the industrial capitalist, who uses it in production in order to obtain surplus-value. Thus there arises a separation between the ownership of capital and its employment in production, a separation between capital as property and capital as function.
Interest and Profit of Enterprise.
The Rate of Interest and its Tendency to Fall

The manufacturer or merchant surrenders part of his profit to the money capitalist in the form of interest. Thus, the average profit is broken down into two parts. The part which remains with the industrialist or merchant, i.e., the functioning capitalists~ is called the profit of enterprise..

Just as the form assumed by interest gives rise to a misleading Impression that interest is a natural product of capital-ownership, so the form assumed by profit of enterprise gives rise to the illusion that this income is the remuneration of the functioning capitalist for managing the enterprise and supervising the labour of his workers. In fact, profit of enterprise, like interest, has no connection with work in the management of production; it is part of the surplus-value which the capitalists appropriate without compensation.

The proportion in which the average profit is divided between profit of enterprise and interest depends on the balance of supply and demand of loan capital, the state of the market for money capital. The higher the demand for money capital, the higher, other things being equal, will the rate of interest be. The rate of interest is the name given to the relationship between the amount of the interest and that of the money capital which is lent. In ordinary circumstances, the upper limit of the rate of interest is the average rate of profit, since interest is a part of profit.

As a rule, the rate of interest is considerably less than the average rate of profit.

As capitalism develops, the rate of interest displays a tendency to fall. This tendency results from two causes: first, the operation of the law of the tendency of the average rate of profit to fall, since the average rate of profit constitutes the upper limit of the fluctuations of the rate of interest; secondly, as capitalism develops, the total mass of loan capital grows faster than the demand for it. One of the causes of the growth of loan capital is the increase among the bourgeoisie of the group of rentiers, i.e., capitalists who are owners of money capital and engage in no activity whatsoever in connection with business. This also reflects the increase of parasitism in bourgeois society. The growth of loan capital is facilitated by the centralisation of spare money in banks and savings banks..

Interest on short-term loans on the U.S. money market ranged in 1866-80 from 3.6 (lowest rate) to 17 (highest rate), in 1881-1900 from 2.63 to 9.75, in 1921-20 from 2.98 to 8, in 1921-35 from 0.75 to 7.81, and in 1945-54 from 0.75 to 2.75.
Forms if Credit. Banks and their operations

Capitalist credit is the form of motion of loan capital. Through the medium of credit, temporarily spare money capital is transformed into loan capital. Under capitalism two forms of credit exist: commercial and bankers’.

Commercial credit means the credit which the functioning capitalists (i.e., the manufacturers and merchants) allow other in connection with the realising of commodities. The manufacturer, endeavouring to hasten the turnover of his capital which is in commodity form, supplies commodities on credit to another manufacturer or wholesale merchant, and the wholesale merchant in his turn sells the commodities on credit to the retailer. Commercial credit is used by capitalists in buying and selling raw material, fuel, equipment, machinery and also consumer goods.

Usually, commercial credit is short-term: it is given for a period not exceeding a few months. The instrument of commercial credit is the bill of exchange. A bill of exchange is a debt obligation by which the debtor undertakes to pay within a definite period of time for the commodities he has bought. When the time for payment comes round a buyer who has given a bill of exchange must honour it in cash. Commercial credit therefore is bound up with trading deals and as a consequence is the foundation of the capitalist credit system.

Bankers’ credit means credit granted by money capitalists (bankers) to the functioning capitalists. Bankers’ credit, unlike commercial credit, is not drawn from capital engaged in production or circulation but from idle and also temporarily spare money capital seeking application. Bankers’ credit is granted; by the banks. A bank is a capitalist concern which trades in money capital and acts as middleman between lenders and borrowers. The bank, on the one hand, collects spare, inactive capital and income, and on the other, places money capital at the disposal of the functioning capitalists-manufacturers and merchants..

The overwhelmingly larger part of the capital at the disposal of the banks is not their own property and is subject to withdrawal. But at any particular moment only a fairly small section of the depositors are applying to take out their deposits. In the majority of cases the withdrawal of money is balanced and exceeded by the inflow of new deposits. Thee situation is radically altered when any emergency occurs-a crisis or a war. Then the depositors demand the return of their deposits all at the same time. In ordinary circumstances a bank need keep in its safes only a comparatively small amount of money to pay those who want to withdraw their deposits. By far the larger amount of the deposits is lent out.

Bank operations are divided into passive and active.

Passive operations are those by which the bank draws money into its safes. The principal means by which these operations are effected is the receipt of deposits. Deposits are made in various forms: some for a definite term, others on current account. The latter must be paid out by the bank on demand, whereas fixed-term deposits may be withdrawn only after the agreed term has elapsed. Thus, fixed-term deposits are advantageous to the bank.

Active operations are those by which the bank places and utilises the means which it has at its disposal. These are, first and foremost, the granting of money on loan. One of these operations is the discounting of bills of exchange. A manufacturer who has sold his goods on credit brings to the bank the bill of exchange he has received from the purchaser, and the bank forthwith pays out to the manufacturer the sum specified in the bill of exchange, less a certain percentage. At the conclusion of the period for which the bill is made out, the drawer of the bill pays not the manufacturer but the bank. Through this operation commercial credit is interwoven with bank credit. Also to the category of the bank’s active operations belong the granting of loans on various kinds of security: goods, gilt-edged securities, shipping documents. The bank also makes direct investments of capital in various enterprises in the form of longterm credit.

Thus, a banker is a trader in money capital. In its passive operations the bank pays interest, in its active operations it receives interest. The bank pays a lower rate of interest on the money lent to it and charges a higher rate on the loans which it makes itself. The source of the bank’s profit is the surplus-value created in production. The bank’s profit comes out of the difference between the interest which the bank draws and the interest which it pays out. Out of this difference the bank covers the expenses arising from its operations; these expenses are net costs of circulation. The sum remaining forms the bank’s profit. The mechanism of capitalist competition by its own action brings down the level of this profit to the average rate of profit on capital in general. The labour of the wageworkers employed in the bank, like the labour of commercial employees in the realisation of commodities, does not create value and surplusvalue; but enables the banker to appropriate part of the surplus-value which is created in production. The bank employees are thus subjected to exploitation by the bankers.

The banks fulfil the function of centres for the settling of accounts. Each business which deposits money with the bank or is in receipt of a loan from it has a current account at the bank. The bank pays out money from current accounts on orders presented in a special form, called cheques. Thus, the bank acts as cashier for a number of businesses. This circumstance makes it possible to develop on an extensive scale the settling of accounts without any actual passing of cash. Capitalist A, who has sold commodities to capitalist B, receives from him a cheque drawn on the bank where both of them have current accounts. The bank adjusts the account, transferring the amount named on the cheque from B’s current account to A’s. Concerns have current accounts in different banks.

In the principal centres the banks set up special clearing houses where cheques drawn on many banks cancel each other out to a considerable extent. The circulation of cheques and bills of exchange reduces the need for cash..

Under capitalism there are three main types of bank: commercial banks, mortgage banks and banks of issue. Commercial banks provide credit for manufacturers and merchants predominantly by way of using short-term loans. To a large extent this is done by discounting bills of exchange. This credit is mainly drawn from deposits.

Mortgage banks are concerned with the issue of long-term loans on the security of real property (landholdings, houses, buildings). The rise and activity of mortgage banks is closely connected with the development of capitalism in agriculture, with the exploitation of the peasants by the bankers. To this category of banks also belong the agricultural banks which grant long-term loans for productive purposes..

Banks of issue have the right to issue money of credit-banknotes. Central banks of issue playa special role. It is in these banks that the country’s gold reserves are concentrated. They enjoy the exclusive right to issue banknotes. Central banks do not usually do business with particular manufacturers or merchants, but make loans to commercial banks, which in their turn do business with entrepreneurs. Thus, the central banks of issue are bankers’ banks..

By concentrating loan and payment transactions, banks help to speed up the turnover of capital and to lower the costs of monetary circulation. At the same time, the activity, of the banks facilitates the centralisation of capital, the squeezing-out of the small and medium capitalists, the intensification of the exploitation of the workers and the plundering of the craftsmen and artisans. Mortgage loans ruin the peasants because the payment of interest on these loans, absorbing as it does the major part of their incomes, leads to the breakdown of their economic activity. The paying off of these debts is often effected by way of selling up the land and other property of the peasants who have fallen into dependence on the banks.

Concentrating all the money capital of society as they do, and acting as middlemen for credit, the banks serve as a special kind of apparatus for the spontaneous distribution of resources between different branches of the economy. This distribution takes place not in the interest of society or in accordance with its needs, but in the interests of the capitalists. Credit facilitates the extension of production, but this extension again and again encounters the narrow framework of effective demand. Credit and the banks contribute to the further growth of the socialisation of labour, but the social character of production comes into ever sharper conflict with the private, capitalist form of appropriation. Thus, the development of credit renders the contradictions of the capitalist mode of production more acute and intensifies its anarchy.
Joint-Stock Companies. Fictitious Capital

In the capitalist countries of today the overwhelming majority of large concerns take the form of joint-stock companies. Joint-stock companies made their appearance as far back as the beginning of the seventeenth century, but they became very widespread only in the second half of the nineteenth century.

A joint-stock company is a form of enterprise the capital which consists of contributions by its members, who own a certain number of shares, commensurate with the amount of money invested by them. A share is a security which gives the holder the right to receive part of the income of the enterprise in accordance with the amount inscribed upon it.

The income received by the shareholder is called a dividend. Shares are bought and sold at definite prices..

A capitalist who buys shares might have deposited his capital in the bank and received, say, 5 per cent on it, However, this income does not satisfy him and he prefers to buy shares. Although this course has some risk attached to it, as against that it offers him a larger income. Let us suppose that a share capital of ten million dollars is divided into 20,000 shares, priced at 500 dollars each, and that the business brings in one million dollars profit. The joint-stock company decides to leave 250,000 dollars of this amount in reserve and to divide the remaining sum of 750,000 dollars as dividend amongst the shareholders. In this case each share will bring its owners an income, in the form of dividend (750,000 dollars divided into 20,000 shares) of 37.5 dollars, which works out at 7.5 per cent..

Shareholders when they sell their shares try to get a price which, if it were paid into a bank, would bring them in as loan-interest the same income which they receive as dividend. If a 500-dollar share brings in 37.S dollars dividend, the holder of such a share will try to sell it for 750 dollars, so that, when he deposits this amount in a bank which pays 5 per cent, he will receive the same 37.5 dollars as interest. Purchasers of shares, however, taking into account the risk involved in investing their capital in a joint-stock enterprise, endeavour to acquire shares for a smaller sum. The price of shares depends on the amount of dividend and the level of loan-interest, The price of shares rises with the rise of dividend or the fall in the interest-rate; conversely; it falls when the dividend is lowered or the interest-rate raised.

The difference between the total amount of the prices of shares issued on the foundation of a joint-stock company and the magnitude of the capital actually invested in the concern, makes up the founder’s profit. Founder’s profit is one of the important means of enrichment of the large-scale capitalists..

If the capital previously invested in a concern amounts to ten million dollars, and the total of the prices of the shares issued amounts to fifteen million dollars, then founder’s profit in this instance will be five million dollars..

As a result of the transformation of an individual business into a joint-stock company, capital obtains as it were a two-fold existence. The actual capital invested in the business to the amount of ten million dollars exists in the form of factory buildings, machinery, raw materials, stores, finished products, and, finally, of definite amounts of money kept in the safes belonging to the business or in a current account at the bank..

Alongside real, capital, however, when the joint-stock company is founded, securities make their appearance-shares, amounting to fifteen million dollars. A share is only a reflection of capital which really exists in the concern. But at the same time, the shares have an existence separate from that of the business; they are bought and sold, the bank issues loans on them, etc.

From the formal standpoint the supreme authority in a joint-stock company is the general meeting of shareholders which elects the governing body, nominates the officials, receives and adopts the accounts of the business and decides the main questions of the activity of the jointstock company.

But the number of votes at a general meeting is allotted in accordance with the number of shares, as represented by their holders. For this reason, the joint-stock company is in reality completely in the grip of a small handful of the biggest shareholders. Since a certain number of the shares are dispersed among small and medium shareholders who are not in a position to exercise any influence whatever on the course of affairs, in practice the big capitalists do not need to possess even so much as half of the shares to dominate a joint-stock company. The number of shares which enables one completely to rule the roost in a joint-stock company, is called the controlling interest.

Thus, the joint-stock company is the form in which big capital subordinates to itself and utilises for its own ends the resources of the small and medium capitalists. The widespread extension of joint-stock companies very greatly facilitates the centralisation of capital and the enlargement of production.

Capital which exists in the form of securities which bring in an income to their owners is called fictitious capital. To the category of fictitious capital belong shares and bonds. A bond is acknowledgment of debt, issued by a bank, by a business or the State and bringing its bearer a fixed annual rate of interest.

Securities (shares, bonds, etc.) are bought and sold on stock exchanges. A stock exchange is a market for securities. The prices at which securities are being bought and sold at any particular moment are registered on the stock exchange; deals in securities are made at these prices outside the exchanges as well (e.g., the banks). The price of securities depends on the level loan-interest and the amount of presumable income from the securities. Speculation in securities takes place on the stock exchange. Inasmuch as all the advantages in the game of speculation lie with the big and very big capitalists, stock exchange speculation contributes to the centralisation of capital, enriching the upper circle of capitalists and ruining the medium and small property owners.

The widespread extent of credit and in particular of joint-stock companies to an ever-increasing extent transforms the capitalist into a receiver of interest and dividends, while the management of production passes into the hands of salaried persons-managers and directors. Thus the parasitic nature of capitalist property becomes ever more marked.
Monetary Circulation in Capitalist Countries

Even before the appearance of capitalism metallic monetary systems had arisen in which metals played the part of money commodity. Metallic monetary systems are divided into bimetallic, where the measure of value and the basis of monetary circulation is furnished by two metals at the same time, silver and gold, and monometallic, where only one of the two metals named plays this role. In the early stage of the development of capitalism (sixteenth to eighteenth centuries), the monetary systems of many countries were bimetallic. Towards the end of the nineteenth century nearly all capitalist countries had gone over to monometallism, with gold as the metal used.

The main features of a system of gold monometallism are: free minting of gold coins, free exchange of other money tokens for gold coins, and free movement of gold from country to country. Free minting of gold coins means the right of private persons to exchange any gold they have for coins at the mint. At the same time the owners of coins have the right to transform their coins into ingots of gold. Thus a direct and very close link is established between gold as a commodity and gold coins. Under a system like this the amount of money in circulation is spontaneously brought into keeping with the amount required for the circulation of commodities. If an excess of money is formed, part of this leaves the sphere of circulation and is transformed into hoards. If a shortage of money arises, then these hoards flow out into the sphere of circulation; money ceases to be hoarded and becomes circulation medium and means of payment. To meet the requirements of small-scale turnovers, where a gold-monometallic system prevails coins are issued which are not of face value, made of a cheaper metal (silver, copper, etc.).

Gold, the world money, serves as the instrument of international settlement in commercial and financial transactions. The exchange of the currency of one country for the currencies of others is carried out in accordance with a rate of exchange. The rate of exchange means the price of the monetary unit of one country expressed in the monetary units of other countries. For example, one pound sterling is equal to suchand- such a quantity of dollars.

Settlements in foreign trade transactions can also be effected without transfers of gold or foreign currency. In some cases this can be done by a clearing settlement, i.e., by the mutual setting-off of debts incurred through the supply of commodities in bi-lateral trade. In other cases, settlements between countries may be effected by means of transfer of bills of exchange from country to country, without the movement of gold.

With the growth of credit-relations and the development money’s function as a means of payment credit money made its appearance and developed widely. Bills of exchange, banknotes and cheques began to function mainly as means of payment. Although the bill of exchange is not money, it can serve as a means of payment through the transfer of a bill of exchange from one capitalist to another.

Banks issue their own bonds, which function as credit money, being used as medium of circulation and as means of payment. The principal form of credit money is bank-notes, which banks, issue in exchange for bills of exchange deposited with them. This means that underlying banknotes in the last analysis are; commodity transactions.

The issue of bank-notes makes it possible to provide circulation media and means of payment adequate for the growing circulation of commodities without increasing the amount of metallic money. Under a gold system of monetary circulation; bank-notes can at any time be exchanged by the banks for gold or other metallic money. In such conditions bank-notes circulate on an equal footing with gold coins and cannot depreciate, since besides the backing of credit they also have al backing of metal. As capitalism develops, a relative reduction takes place in the amount of gold which is in circulation. Gold is to an increasing extent accumulated in the form of reserve funds in the central banks of issue. The capitalist States took the road of building up gold reserves so as to strengthen their position in foreign trade, for the conquest of new markets and in preparing and waging wars. Gold came to be replaced in circulation by bank-notes and later also by paper money. Whereas at first bank-notes were, as a rule, exchangeable for gold, later on inconvertible bank-notes were issued. This has to a considerable extent made banknotes similar to paper money.

As already mentioned, paper money arose on the basis of the development of money’s function as a medium of circulation.

Paper money issued by States as legal tender, are inconvertible into gold and serve to represent metallic money of full value in its function as a medium of circulation.

Since the beginning of the first imperialist world war (1914-18) the majority of capitalist countries have gone over to the system of papermoney circulation. At the present time gold money is not in circulation in any country. The ruling classes of capitalist States utilise the issue of inconvertible banknotes and paper money and the devaluation of currencies as a means of additional exploitation and plundering of the working people.

This is seen with particular clarity in the case of inflation. Inflation is characterised by the presence in the channels of circulation of an excessive amount of paper money, its devaluation, a rise in the prices of commodities, a fall in the real wages of manual and clerical workers and an intensification of the impoverishment of the peasants, with an increase in the profits of the capitalists and the receipts of the landlords. Bourgeois States employ inflation as an instrument of economic war against other countries and conquest of fresh markets. Inflation often enables exporters to make additional profits, through buying goods in their own countries with depreciated money at a low rate and selling these goods abroad for hard currency. At the same time the growth of inflation brings disorder into economic life and arouses indignation among the masses.

This compels the bourgeois States to carry out monetary reforms in order to strengthen their monetary systems and stabilise currencies..

The most widespread kind of monetary reform is devaluation. Devaluation is an official reduction of the rate of exchange of paper money, in relation to the metallic unit of money, carried out by changing old, depreciated paper money for a smaller quantity of new money. Thus, in Germany in 1924 the old depreciated money was exchanged for new, expressed in gold marks, at the rate of one trillion marks for one mark..

In a number of cases devaluation has not been accompanied by exchange of old paper money for new.

Monetary reforms are carried out in capitalist countries at the expense of the working people, through increases in taxes and decreases in wages.


(1) Loan capital is money capital which its owner places temporarily at a capitalist’s disposal in return for a consideration in the form of interest-payments. Interest is a part of the industrial capitalist’s profit which he hands over to the owner of loan capital.

(2) Capitalist credit is the form of movement of loan capital. The main forms of credit are commercial credit and bankers credit. The banks concentrate the monetary resources of society in their hands and make them available as money capital to the functioning capitalistsmanufacturers and merchants. The development of credit leads to the growth of capitalist contradictions. The separation of ownership of capital from the employment of capital in production graphically reveals the parasitic character of capitalist property.

(3) A joint-stock company is a form of enterprise the capital of which consists of contributions by its members, each of whom owns a certain number of shares corresponding to the amount of money he has invested. In joint-stock companies big capital subjects to itself and uses in its own interests the resources of small and medium capitalists. Jointstock companies stimulate the centralisation of capital.

(4) As credit develops, the use of credit money becomes widespreadbank- notes issued by the banks in exchange for bills of exchange. The ruling classes of capitalist society use the issue of paper money as a means of intensifying the exploitation of the working people. By inflation the burden of State expenditure is transferred to the shoulders of the mass of the people. Monetary reforms are carried out by capitalist States at the expense of the interests of the working people.

XIV. Ground-Rent. Agrarian Relations under Capitalism

The Capitalist System of Farming and Private Property in Land

In bourgeois countries capitalism prevails not only in industry but also in agriculture. The greater part of the land is concentrated .in the hands of a class of large landowners. The bulk of agricultural production for the market is carried on by capitalist enterprises employing wagelabour.

In bourgeois countries, however, the numerically predominant form of economy in farming remains the petty-commodity-producing peasant holding.

Two paths of development are most typical of capitalism in agriculture.

The first path is one in which the old landlord estate is preserved, in the main, and gradually transformed through reforms into a capitalist economy. Passing over to capitalist forms of estate-management, the landlords, in addition to using free, hired labour, also make use of methods of exploitation derived from serfdom. Servile forms of dependence by the peasants on the landlords are retained in agriculture, in such forms as labour-rent, share-cropping, etc. This path of capitalist evolution in farming was typical for Germany, Tsarist Russia, Italy, Japan and a number of other countries.

The second path consists of the old landlord estate being broken up by a bourgeois revolution and agriculture being freed from the shackles of serfdom: as a result of which the development of the productive forces takes place more rapidly. Thus, in France the bourgeois revolution of 1789-94 brought feudal landownership to an end. The confiscated lands of the nobility and clergy were sold off. Small peasant economy came to predominate in the country, though a considerable part of the land fell into the hands of the bourgeoisie. In the U.S.A. as a result of the Civil War of 1861-5 the slave-owners’ latifundia in the Southern States were broken up, a large amount of unworked land was sold off cheaply and agriculture began to develop along the lines of capitalist farming. But even in these countries, as capitalism developed, large-scale property m land arose anew on a new, capitalist basis.

As a result of the transformation of pre-capitalist forms of agriculture, large-scale feudal and petty peasant property in land to an ever-increasing extent give place to bourgeois landed property. A continually growing section of the lands of the landlords and the peasants passes into the hands of the banks, the rural-bourgeoisie, manufacturers, merchants and money-lenders..

The following figures show how property in land is becoming concentrated. In the U.S,A. in 1950 76.4 per cent of the farms; possessed only 23 per cent of all the land area, while in 23.6 per cent of the farms were concentrated 77 per cent of the land. The largest latifundia, each with more than a thousand acres, which made up 2.3 per cent of all the farms, possessed 42.6 per cent of the land..

According to census data for 1950, m Great Britain (U.K., excluding Northern Ireland), 75.9 per cent of the farms embraced only 20.4 per cent of all the agricultural land, while 24.1 per cent of the farms embraced 79.6 per cent, and of these 2.3 per cent of the largest farms embraced 34.6 per cent of the land. .

In France in 1950 62.1 per cent of the land was in the hands of 20.5 per cent of the farmers..

In pre-revolutionary Russia a very large amount of land belonged to the landlords, the Imperial family, the monasteries and the kulaks. The largest landlords, possessing more than 1,500 acres each, numbered in European Russia at the end of the nineteenth century about 30,000. They owned 190 million acres of land. At the same time ten and a half million peasant households, suffering the oppression of semi-serfdom, possessed only 202 million acres.

Under capitalism a monopoly of private ownership of land by a class of large landowners prevails. Large landed proprietors usually let out part of their land on lease to capitalist tenant-farmers and small peasants. The ownership of land is separated from agricultural production.

Capitalist tenant farmers pay to the owner of the land at definite intervals, e.g., every year, a rent laid down in the tenancy agreement, i.e., a sum of money in return for permission to apply their capital to the piece of land in question. The principal part of the rent is the ground-rent.

Rent includes other elements in addition to ground-rent. Thus, if capital has previously been invested in a piece of land which is being leased (e.g., in the form of farm buildings or irrigation works), then the tenant must pay the landowner, besides the ground-rent, also an annual interest on this capital. In practice capitalist tenant-farmers often meet part of their rent by lowering the wages of their workers.

Capitalist ground-rent expresses the relations between three classes in bourgeois society: wage-workers, capitalists and owners of land. The surplus-value created by the labour of the wage-workers falls first of all into the hands of the capitalist tenant-farmer. Part of the surplus-value remains with the tenant in the form of average profit on capital. Another part, being the excess over the average profit, the tenant is obliged to hand over to the landowner as ground-rent. Capitalist ground-rent is that part of the surplus-value which remains after deduction of the average rate of profit on the capital invested in the farm, and which is paid to the owner of the land. Often the landowner, instead of letting out the land on lease, himself engages workers and runs a farm. In that case both rent and profit belong to him alone.

It is necessary to distinguish between differential rent and absolute rent.
Differential Rent

In agriculture as in industry an entrepreneur will invest his capital in a certain line of production only if it promises him the average. profit. Those entrepreneurs who invest their capital under more favourable conditions of production than others, for example, in more fertile pieces of land, obtain besides the average profit on their capital also an additional profit.

In industry, additional profit is obtained by enterprises which introduce higher technique compared with the average level of technique in the given branch of industry. Additional profit cannot be a constant phenomenon in industry. As soon as some technical improvement which has been introduced in a particular enterprise becomes widespread, the pioneer enterprise is deprived of its additional profit. In agriculture, however, additional profit is consolidated for a more or less lengthy period. The reason for this is that in industry any number of concerns may be set up, equipped with the most advanced machinery. In agriculture it is not possible to bring into being any number of pieces of land, not to speak of better pieces, because the amount of land is limited and all the land suitable for cultivation is occupied by private owners. The limited amount of land and the fact that it is occupied by particular owners gives rise to monopoly of capitalist ownership of land, or monopoly in land as the subject of economic activity.

Furthermore, in industry the price of production of commodities is determined by the average conditions of production. The price of production of agricultural commodities is formed in a different way. The existence of the monopoly of capitalist ownership of land as a subject of economic activity leads to the general, regulating price of production (i.e., the costs of production plus the average profit) of agricultural products being determined by the conditions of production which prevail not on the average but on the worst of the cultivated land, since the production of the best and medium-quality land is insufficient to meet society’s demands. If the capitalist tenant-farmer who invested his capital in the worst piece of land did not obtain the average profit, he would withdraw his capital to another branch of economy.

The capitalists who farm the medium and best pieces of land produce agricultural commodities more cheaply; in other words, the individual price of production on their farms is lower than the general price of production. Making use of the monopoly of land as an object of economic activity, these capitalists sell their goods at the general price of production and obtain additional profit, which goes to form differential rent. Differential rent does not arise because private property in land exists; it comes into being because of the fact that agricultural which are grown under varying conditions of labour, are sold at a uniform market price, conditions of production on the worst lands. The capitalist tenantfarmers are compelled to pay the differential rent to the landowners, retaining for themselves the average profit.

Differential rent is the excess profit-over and above the average profit-obtained by those farms that operate under more favourable conditions of production; it means the difference between the individual price of production on the best and medium plots of land and the general price of production, determined by conditions of production on the worst plots of land.

This additional profit, like all surplus-value in agriculture, is created by the labour of the agricultural workers. Differences in the fertility of the plots of land provide only the conditions for a higher productivity of labour on the best lands. Under capitalism, however, a misleading appearance is formed, as though the rent which is appropriated by the owners of land were a product of the land and not of labour. In fact, the only source of ground-rent is surplus labour, surplus-value. “For a correct understanding of rent naturally what is needed first and foremost is recognition that it is obtained not from the soil but from the produce of agriculture, and so from labour, from the price of the product of labour, e.g., wheat: from the value of agricultural produce, from labour invested in the land, and not from the land itself." (K. Marx, Theories of Surplus Value, Russian edition, 1936, vol. II, Pt. I, p. 221.)

There are two forms of differential rent:

Differential rent I is connected with the difference in the fertility of the soil and in the location of the pieces of land in relation to markets.

From a more fertile piece a higher yield can be obtained with the same outlay of capital. Let us take for example three pieces which are identical in size but different in fertility.

Individual price of
production General price
of production Differential
rent I
In dollars

Pieces of land Outlay of
dollars Average
in dollars Production in
centres Of all
production in
dollars Of one
centner in
dollars Of one
centner in
dollars Of all
production in

I 100 20 4 120 30 30 120 0
II 100 20 5 120 24 30 150 30
III 100 20 6 120 20 30 180 60

The leaseholder of each of these pieces lays out 100 dollars on hire of workers, purchase of seed, machinery, implements, upkeep of cattle, and other expenses. The average profit is 20 per cent. Labour applied to these pieces of varying fertility gives a yield of 4 centners from the first plot, 5 from the second and 6 from the third.

The individual price of production of the whole mass of products produced on each piece is the same. It is 120 dollars (costs of production plus average profit). The individual price of production of a unit of production differs from one piece to another. A centner of agricultural produce from the first piece ought to be sold for go dollars and one from the third for 20 dollars. But since the general price of production in agricultural commodities is uniform and is determined by the conditions of production on the worst piece of land, every centner of produce from all three of the pieces will be sold at 30 dollars. The tenant of the first (worst) piece will receive for his harvest of 4 centners 120 dollars, i.e., the amount equal to his costs of production (100 dollars) plus the average profit (20 dollars). The tenant of the second piece receives for his 5 centners 150 dollars. Over and above his costs of production and the average profit, he receives go dollars of additional profit, which constitutes the differential rent. Finally, the tenant of the third piece receives for his 6 centners 180 dollars. Here the differential rent amounts to 60 dollars.

Differential rent I is also connected with difference in location of pieces of land. Those farms which are situated nearer to selling outlets (towns, railway stations, seaports, elevators, etc.) save a considerable part of the labour and means of production required for transport of products, compared with farms which are at a greater distance from these outlets. As they sell their products at the same price as the others, the farms which are situated near to markets, obtain additional profit, which forms differential rent, by virtue of their situation.

Differential rent II arises as a result of additional investments of means of production and labour in one and the same piece of land, i.e., when farming is intensified. In contrast to extensive farming, which grows by extending the arable area of pastures, intensive farming develops by the introduction of improved machinery and artificial fertilizers, the carrying out of land- improvement work, the breeding of more productive strains of cattle, etc. With technique unchanged" intensification of agriculture can be expressed in a greater amount of labour expended on a given piece of land. All these measures result in the obtaining of additional profit, which forms differential rent.

Let us come back to our example. On the third piece, the most fertile one of the three, 100 dollars was expended first of all, and this gave 6 centners of produce: the average profit was 20 dollars, the differential rent 60 dollars. Let us suppose that, prices remaining as before, a second, additional and more productive expenditure of 100 dollars of capital is made on this piece-connected with development of technique, use of greater quantity of fertilizer, etc. As a result, an additional harvest of 7 centners is obtained, the average profit on the additional capital amounts to 20 dollars, and the surplus over the average profit to 90 dollars. This surplus of 90 dollars constitutes differential rent II. So long as the previously-made tenancy agreement continues in force, the tenant is paying for this piece a differential rent of 60 dollars, and the excess over the average profit which he receives from the second, supplementary expenditure of capital, goes into his pocket. But the land is leased for a defined period of time. When next the land is leased to a tenant, the landowner will take into account the profits which have been achieved by additional expenditure of capital, and will raise the amount of ground-rent on this piece to go dollars. With these aims in mind landlords try always to conclude tenancy agreements for short periods only. What follows from this is that capitalist tenant-farmers are not interested in making large-scale outlays of capital such as bring results only after a long interval of time, since the gains produced by these outlays will eventually be appropriated by the landowners.

Capitalist intensification of agriculture is carried out for the purpose of obtaining the maximum profit. In their hunt for high profits the capitalists use the land in rapacious fashion, developing farms of a narrowly specialised type, with cultivation of some single crop alone.

Thus, in the last quarter of the nineteenth century the land in the Northern States of the U.S.A. was mainly under grain crops. This brought in its train destruction of the soil structure, its pulverisation, and the appearance of “black storms" of dust.

The production of certain kinds of agricultural crops rather than others changes with the fluctuation of market prices. This makes it impossible to introduce on all lands correct crop-rotations, which are the foundation of a high level of agriculture. Private property in land hinders the carrying out of large-scale land-improvement and other works which pay for themselves only over a lapse of years. Capitalism thus obstructs the introduction of a rational system of agriculture.

“All progress in capitalistic agriculture is a progress in the art, not only of robbing the labourer, but of robbing the soil; all progress in increasing the fertility of the soil for a given time is a progress towards ruining the lasting sources of that fertility." (Marx, Capital, Kerr edition, vol. I, p. 555.)

Capitalism’s defenders, in their attempts to conceal the contradictions of capitalist agriculture and to justify the poverty of the masses, allege that agriculture is subject to the operation of an eternal, natural “law of diminishing returns": each additional application of labour to land is said to give a poorer result than the previous one.

This fabrication of bourgeois political economy is deduced from the false assumption that technique in agriculture remains unchanging, that progress in technique occurs only by way of exception. In reality, however, additional investments of means of production and labour in one and the same piece of land are associated as a rule W1th the development of technique, with the introduction of new and improved methods of agricultural production, which bring about a rise in the productivity of agricultural labour.

The real source of the exhaustion of natural fertility and the degradation of capitalist agriculture is not the “law of diminishing results" thought up by bourgeois economists, but capitalist relations, and above all private property in land, which hold back the development of the productive forces of agriculture. What in fact increases under capitalism is not the difficulty of producing agricultural produce but the workers’ difficulty in purchasing it, which results from their growing poverty.
Absolute Rent. Price of Land

Besides differential rent the owner of land receives absolute rent. The existence of this is linked with the existence of the monopoly of private ownership of land.

When we were examining differential rent we assumed that the tenant of the worst piece of land, when he sells agricultural produce, obtains for it only the costs of production plus the average profit, i.e., that he does not pay ground-rent. In reality, however, the owner of even the worst piece does not make it available for cultivation free of charge. And this means that the market price of agricultural commodities has to be higher than the price of production on the worst piece of land.

What is the source of this surplus? Under capitalism, agriculture is much more backward than industry from the technical and economic standpoint. The organic composition of capital is lower in agriculture than in industry. Let us assume that the organic composition of capital in industry is, on the average, 80c+20v. With a rate of surplus-value of 100 per cent, each 100 dollars of capital will produce 20 dollars of surplusvalue, and the price of production will be 120 dollars. The organic composition of capital in agriculture is, let us say, 60c+40v. For each 100 dollars there is produced in this case 40 dollars of surplus-value, and the value of agricultural commodities is 140 dollars. The capitalist tenantfarmer, like the industrial capitalist, receives the average profit on his capital, equivalent to 20 dollars. In accordance with this, the price of production of agricultural goods is 120 dollars. Under these conditions the absolute rent will be (140- 120) 20 dollars. It follows from all this that the value of agricultural commodities is higher than the general price of production, and the amount of surplus-value in agriculture is greater than the average profit. This excess of surplus-value over average profit is the source of absolute rent.

If there were no private property in land, this surplus would enter into the general redistribution of surplus-value among the capitalists, and agricultural products would then be sold at their prices of production. But private property in land prevents free competition, the flow of capital from industry into agriculture and the formation of an average profit, common for both agricultural and industrial enterprises. For this reason agricultural products are sold at the price which corresponds to their value, i.e., which is higher. than the general price of production. The extent to which this difference can be realised and transformed into absolute rent depends on the level of market prices, which is established as a result of competition.

The monopoly of private property in land is thus the reason for the existence of absolute rent, which is paid on every plot of land regardless of its fertility or its location. Absolute rent is the excess of value over the general price of production which is created in agriculture in consequence of its lower organic composition of capital compared with industry and is appropriated by the landowners thanks to private property in land.

Besides differential and absolute rent another form which exists under capitalism is monopoly rent. Monopoly rent is additional income received owing to the price exceeding the value of a commodity produced in especially favourable natural conditions. Such, for example, is rent obtained for lands on which it is possible to produce scarce agricultural crops in restricted quantity (e.g., particularly valuable types of grape, citrus fruit, etc.), or rent for the use of water in areas where agriculture depends on irrigation. The commodities which are produced under these conditions are sold, as a rule, at prices which are above their value, i.e., at monopoly prices. Monopoly rent in agriculture is paid at the expense of the consumer.

The class of large landowners, who have nothing whatsoever to do with material production, are able thanks to the monopoly of private ownership of land to make use of the attainments of technical progress in agriculture for their own enrichment. Ground-rent is the tribute which society is obliged under capitalism to pay to the large landowners. The existence of absolute and monopoly rent makes agricultural produce dearer-both foodstuffs for the workers and raw material for industry. The existence of differential rent deprives society of all the benefits connected with the higher productivity of labour on fertile lands. These benefits fall to the class of landowners and capitalist farmers. Just how burdensome ground-rent is for society is shown by the fact that in the U.S.A., according to figures for 1935-7, it amounted to 26 to 29 per cent of the price of maize and 26 to 36 per cent of the price of wheat.

Enormous resources are diverted from productive application in agriculture when land is purchased. If we leave out of account artificial constructions and improvements, such as farm-buildings, irrigation, drainage of marshes, or application of fertilizers, the land in itself has no value, since it is not a product of human labour. Nevertheless, this land which has no value is under capitalism an article which is bought and sold and has a price. The explanation of this is that the land has been seized by the landowners and made their private property. The price of a piece of land depends on the rent annually receivable from it and on the rate of interest which the banks pay on deposits. The price of land is equal to the sum of money which, if it were lodged with the bank, would produce in the form of interest an income of the same amount as the rent obtainable from the land in question. Let us suppose that a piece of land brings in 300 dollars of rent per year and that the bank pays 4 per cent. In this case the price of the land will 300x100/4=7,500 dollars. Thus, the price of land is capitalised rent. The price of land is the higher, the higher the amount of rent and the lower the rate of interest.

As capitalism develops the size of rent increases. This leads to systematic raising of the price of land. Another reason for the increase in the price of land is the fall in the rate of interest..

The following figures give an idea of the growth in the price of land. Farm values in the U.S.A. rose in ten years (from 1900 to 1910) by more than 20 milliard dollars. Of this sum increased value of implements, buildings, etc., accounted only for 5 milliard dollars, the remaining 15 milliard dollars coming from the increased price of land. During the following decade the total price of farms rose by 37 milliard dollars; more than 26 milliard dollars of this was due to the rise in the price of land.
Rent in the Extractive Industries. Rent on Building Lots

Ground-rent is not only found in agriculture. It is received also by the owners of tracts of land from the depths of which minerals are extracted (iron ore; coal, petroleum, etc.), and also by the owners of building lots in towns and industrial centres when dwelling-houses, industrial or commercial buildings or public offices are erected on them.

Rent in the extractive industries is formed in the same way as agricultural rent. Mines, pits and oilfields differ in the wealth of their reserves and the depth of their deposits, and also in their distance from the market outlets. Capitals of varying size are invested in them. For this reason the individual price of production of each ton of ore, coal, petroleum, varies from the general price of production. On the market, however, each of these commodities is sold at the general price of production which is determined by the worst conditions of production. The extra profit which. is thereby received by the best and middling mines, pits and oil wells forms the differential rent intercepted by the landowner.

Besides this, the landowners take absolute rent from each piece of land, regardless of the wealth of the minerals contained in the depths.

This consists, as has been mentioned, of the excess of value over the general price of production. The existence of this excess is explained by the fact that in the extractive industries the organic composition of capital is lower than the average for industry, owing to the comparatively low level of mechanisation and the absence of outlay for the purchase of raw material. Absolute rent increases the price of ore, coal, petroleum, etc.

Finally, monopoly rent exists in the extractive industries in those tracts of land from which are extracted those exceptionally rare minerals which are sold at prices exceeding the value of their output.

The ground-rent drawn by large landowners from mines, pits and oil wells prevents a rational utilisation of the bowels of the earth. Private property in land imports a disunited character to the enterprises of the extractive industry, which obstructs mechanisation and contributes to making production expensive.

Rent for building lots is paid to a landowner by entrepreneurs leasing land where dwelling-houses or industrial, commercial or other enterprises are to be built. The main mass of the ground rent paid in cities consists of rent from the land on which dwelling-houses stand. Location has an enormous bearing on the amount of differential rent payable for a building site. Fort sites which are comparatively near to the city centre and to the industrial enterprises a higher rent is charged. This is one of the reasons why, in the big cities of capitalist countries, houses are built so densely, streets so narrow, etc.)

Besides differential and absolute rent the owners of land in the cities also draw tribute from society in the form of monopoly rent (they are able to do this because of the extremely limited amount of land available in many cities and industrial centres); and this raises house-rent to a very large extent. In connection with the growth of city populations the owners of urban land inflate the rent chargeable for building lots, which puts an obstacle in the way of housing construction. A considerable section of the working population is compelled to live cooped up in slums. The rising rent for housing reduces the real wages of the workers.

The monopoly created by private property in land puts a brake on the development of industry. If he is to build an industrial enterprise, a capitalist must spend his resources unproductively on buying land or on paying ground-rent for land which he leases. Ground-rent constitutes a large item in the expenses of manufacturing industry..

How great is the amount of ground-rent paid for building sites is shown by the fact that of the total amount-155 million-of the rent annually received by British landlords in the 1930’s, 100 million was ground-rent from urban land. The price of land grows rapidly in big cities.
Large-scale and Small-scale Production in Agriculture

The economic laws of development of capitalism are the same for industry and for agriculture. The concentration of production in agriculture, as in industry, leads to the ousting of petty economy by large-scale capitalist economy, which inevitably renders class contradictions more acute. The defenders of capitalism have an interest in covering up and concealing this process. Falsifying reality, they have created a mendacious theory of the “stability of small-peasant economy". According to this theory, small-peasant economy maintains its stability in the struggle with large-scale economy.

In reality, however, large-scale production in agriculture possesses a number of decisive advantages compared with small-scale production. These advantages consist first of all in the fact that it can make use of costly machines (tractors, combines, etc.) which increase the productivity of labour many times over. In the conditions of the capitalist mode of production machine technique is concentrated in the hands of the upper groups of capitalist farmers, and is beyond the reach of the working sections of the country population.

It is large-scale production that obtains all the benefits which flow from capitalist co-operation and division of labour. The principal advantage possesses, by large-scale production is the high proportion of its output which is available for the market. Large and very large agricultural enterprises are responsible for the major part of all the U.S.A.’s marketable agricultural production. Meanwhile the main mass of the farmers carry on what is in essence a subsistence economy, and what they produce does not suffice to meet even the vital needs of their families..

“Small peasants’ property excludes by its very nature the development of the social powers of production of labour, the social forms of labour, the social concentration of capitals, cattle raising on a large scale, and a progressive application of science." (Marx, Capital, Kerr edition, vol. III, p. 938.)

Nevertheless, the process, characteristic of capitalism, of the growth of large-scale production and the ousting of small production has certain special features in agriculture. Large capitalist agricultural enterprises develop mainly by way of intensifying cultivation. Often a farm which is small in extent of land is a large-scale capitalist concern in respect of its gross and marketable output. The concentration of agricultural production in large-scale capitalist concerns is frequently accompanied by a growth in the number of very small peasant holdings. The existence of a considerable number of such very small holdings in highly-developed capitalist countries is accounted for by the fact that it is in the interests of the capitalists to preserve a stratum of labourers with tiny allotments so that they can exploit them.

The development of large-scale capitalist agricultural production leads to intensified differentiation of the peasantry, and growth in the enslavement, impoverishment and ruin of millions of small and medium peasant households..

In Tsarist Russia before the October Revolution the peasant households consisted of 65 per cent poor peasants, 20 per cent middle peasants and 15 per cent kulaks. In France the number of owners of land fell from 7-7 million in 1850 to 2.7 million in 1929, though the expropriation of small, parcelled-out peasant holding, while the numbers of the agricultural proletariat and semi-proletariat reached about 4 million in 1929.

Small-scale economy in agriculture survives at the price of incredible privations and excessive overwork on the part of the tiller of the soil and the whole of his family. In spite of the peasant’s working himself to exhaustion to save his seeming independence, he loses his land nevertheless, and is ruined.

Mortgage credit plays a large part in the expropriation the peasantry.

Mortgage credit means loans granted on security of land and real property. When a farmer who carries on an enterprise on his own land experiences a need for money to meet payments which cannot be postponed (e.g., for payment of taxes), he applies to the bank for a loan.

Sometimes loans are granted for the purchase of a piece of land. The bank advances a certain sum of money on the security of the land. If the money is not paid back in due time, the land passes into the bank’s possession. In fact the bank becomes the true owner of the land even earlier, for the farmer-debtor is obliged to pay over as interest a considerable part of the income he derives from the land. The peasant in fact pays ground-rent to the bank, in the form of interest, for his own piece of land..

The mortgage-indebtedness of American farmers amounted in 1910 to 3.2 milliard dollars and in 1940 to 6.6 milliard dollars. According to figures for 1936, interest on loans absorbed, together with taxes, approximately 45 per cent of the farmers’ net income..

Indebtedness to the banks is a real scourge for small production in agriculture. The number of mortgaged farms in the U.S.A. was in 189028’2 per cent of the total and in 194043’8 per cent.

Every year a large number of peasant farms are sold by auction. The ruined farmers are driven from the land. The growth in farm debts expresses the process separating, the ownership of land from agricultural production, its concentration in the hands of the large landowners and the transformation of the independent producer into a tenant or a wageworker.

A very large number of small peasants rent little plots of land from large landowners on extortionate terms. The agricultural bourgeoisie takes leases of land in order to produce goods for the market and obtain profit. This is entrepreneur tenancy. The small peasant tenant is compelled to take a lease of a fragment of land in order to live. This is socalled food or hunger tenancy. The rent per acre paid for tenancy is usually much larger in the case of small plots of land than in that of large ones. A small peasant’s rent often absorbs not only all his surplus labour but also part of his necessary labour. Tenancy relations are here interwoven with survivals of serfdom. The most widespread survival of feudalism under capitalist conditions is share-cropping, under which the peasant-leaseholder pays in kind up to half or more of the crops he harvests as rent for his holding..

In the U.S.A. in 1950, 57’5 per cent of the farmers owned their land and 26.5 per cent were tenants. In addition, 15.6 per cent of all farmers were “part-owners", i.e., were also obliged to hold on lease part of the land they worked. About half the tenants were share-croppers. Although slavery was officially abolished in the U.S.A. during last century, certain survivals of slavery continue to exist to this day, especially where Negro share-croppers are concerned..

France has a considerable number of share-cropper tenants. Besides rent in kind, which amounts to a half of their crop (and in some cases even more), they are often obliged to supply the owners of their land with produce from their farms—cheese, butter, eggs, poultry, etc.
Deepening of the Antithesis between Town and Country

A typical feature of the capitalist mode of production is a marked lagging of agriculture behind industry, a deepening and sharpening of the antithesis between town and country..

“The development of agriculture lags behind that of industry. This is characteristic of all capitalist countries and is one of the most important causes of the disproportion in the development of the different branches of national economy, of crises, and of the high cost of living." (Lenin, “New data on the laws of development of capitalism in agriculture", Selected Works, 12-vol. edition, vol. XII, p.274.)

Agriculture under capitalism lags behind industry, first and foremost in the level of the productive forces. Technique develops in agriculture slower than in industry. Machinery is used only on the large-scale farms; the petty commodity production of the peasantry is not in a position to use it. And the capitalist use of machinery leads to intensified exploitation and ruin of the small producers. An obstacle to the extensive use of machinery in agriculture is the cheapness of labour-power, which is caused by rural overpopulation.

Capitalism has sharply intensified the lagging of the country behind the town in the sphere of culture. Towns are centres of science and art. In the towns are concentrated the institutes of higher education, the museums, the theatres, the cinemas. The benefits of this culture are utilised mainly by the exploiting classes. The mass of the proletariat is able only to a very slight extent to share in the achievements of urban culture. The main mass of the peasant population in capitalist countries is also cut off from the urban centres and is doomed to cultural backwardness.

The economic basis of the antithesis between town and country under capitalism is the exploitation of the country by the town, the expropriation of the peasantry and the ruining of the majority of the rural population by the entire course of development of capitalist industry, trade and credit. The urban bourgeoisie together with the capitalist farmers and landlords exploit the many millions of peasants. The forms assumed by this exploitation are various; the industrial bourgeoisie and the merchants exploit the countryside through high prices for manufactured commodities and relatively low prices for agricultural commodities; the banks and usurers exploit it through extortionate terms of credit; the bourgeois State exploits it by means of all sorts of taxes.

The huge sums appropriated by large landowners through rent-charges. and the sale of land, and also the resources collected by the banks as interest on mortgage loans etc., are diverted from the country to the town to serve the parasitic consumption of the exploiting classes.

Thus the causes of the lagging of agriculture behind industry and the deepening and sharpening of the antithesis between town and country are inherent in the very system of capitalism itself.
Private Ownership of Land and Nationalisation of the Land

As capitalism develops, private property in land becomes more and more parasitic in character. The class of large landowners grabs in the form of ground-rent an enormous share of the revenues received from agriculture. A considerable part of the revenue is withdrawn from agriculture and falls to the large landowners through the price of land. All this hinders the development of productive forces and renders agricultural produce dearer, which imposes a heavy burden upon the shoulders of the working people. This is why “nationalisation of the land has become a social necessity" (Marx, “Nationalisation of the land", Marx and Engels, Works, Russian edition, vol. XIII, Pt. I, p. 341). Nationalisation of the land means the transformation of private ownership of land into State ownership.

In showing the need for nationalisation of the land, Lenin proceeded from the existence of two kinds of monopoly—monopoly of private property in land and monopoly in land as a subject of economic activity.

Nationalisation of the land means abolition of the monopoly of private ownership of land and the absolute rent connected with it. Abolition of absolute rent would lead to a fall in the price of agricultural produce. But differential rent would continue to exist, as it is connected with monopoly in land as an object of economic activity. In capitalist conditions, a considerable part of. differential rent would, on the land being nationalised, be placed at the disposal of the bourgeois State.

Nationalisation of the land would remove a number of obstacles to the development of capitalism in agriculture created by private property in land, and would free the peasantry from survivals of feudal serfdom.

The demand for nationalisation of the land was put by the Communist Party of the Soviet Union as far back as the period of the first Russian Revolution, 1905-7. Nationalisation of the land meant seizure without compensation (confiscation) of all the land belonging to landlords and its transfer to the peasants.

Lenin considered that nationalisation of the land was possible in a bourgeois-democratic revolution only if a revolutionary democratic dictatorship of the proletariat and peasantry were set up. Nationalisation of the land, as a demand of the bourgeois-democratic revolution, has nothing intrinsically socialist in it. But abolition of landlord ownership of land strengthens the alliance between the proletariat and the main mass of the peasantry and clears the field for the class struggle between the proletariat and the bourgeoisie. Nationalisation of the land thus helps the proletariat, in alliance with the rural poor, in its struggle to bring about the development of the bourgeois-democratic revolution into a socialist revolution.

In developing the Marxist theory of rent, Lenin pointed out that nationalisation of the land within the framework of bourgeois society was capable of accomplishment only in periods of bourgeois revolution and was “inconceivable when the class struggle between proletariat and bourgeoisie is very acute". (Lenin, “The Agrarian Programme of the Social Democrats in the First Russian Revolution, 19D5-07, Selected Works, 12- vol. edition, vol. XII, p. 329.) In the epoch of developed capitalism, when the task of carrying through the Socialist revolution is on the order of the day, nationalisation of the land cannot be realized within the framework of bourgeois society for the following reasons. First, the bourgeoisie cannot bring itself to abolish private property in land because it fears that with the growth of the revolutionary movement of the proletariat this may shake the foundations of private property in general. Secondly, the capitalists themselves have acquired landed property. The interests of the class of bourgeois and the class of landlords become ever more closely interwoven. They always stand together in the struggle against the proletariat and the peasantry.

The entire course of the historical development of capitalism confirms that in bourgeois society the mass of the peasantry, mercilessly exploited by the capitalists, landlords, usurers and merchants, is doomed to impoverishment and want. Under capitalism the small peasants cannot reckon on an improvement in their situation. The class struggle inevitably grows more acute in the countryside. The basic interests of the main mass of the peasantry coincide with the interests of the proletariat. This provides the economic basis for the alliance between the proletariat and the working peasantry in their common struggle against the capitalist system.

(1) The characteristic features of the capitalist system of agriculture are, first, that the predominant share of the land is concentrated in the hands of large landowners who let the land out on lease; secondly, that the capitalist tenant-farmers carry on their economic activity on the basis of exploiting wage-workers; thirdly, the existence of private ownership of means of production, including land, by a numerous class of small and middle peasants. Agriculture in bourgeois countries, despite the growth of capitalism, is still to a substantial degree broken up among small and middle peasant-proprietors whom the capitalists and landlords exploit.

(2) Capitalist ground-rent is that part of the surplus-value created by wage-workers in agriculture which constitutes an excess over the average profit and is paid by the capitalist tenant-farmer to the landowner for the right to use his land. The existence of capitalist ground-rent is connected with the presence of monopoly of two kinds. The monopoly of capitalist economic activity on the land as an object of economic activity is a result of the limited amount of land, and its employment as separate farms, and it leads to the price of production of agricultural commodities being determined by the worst conditions of production. The extra profit obtained from the best lands or from more productive outlays of capital, constitutes differential rent. The monopoly of private property in land, with the low organic composition of capital in agriculture compared with that in industry, gives rise to absolute rent. With the development of capitalism, all forms of rent become bigger and the price of land increases, this being capitalised rent.

(3) In agriculture as in industry, large-scale production, squeezes out small. Large-scale machine production, however, extends in agriculture considerably more slowly than in industry, even in the most developed capitalist countries. At the price of excessive, exhausting labour and sharp reduction of the standard of life of the small peasant and his family, a mass of small peasant holdings continue to exist in the capitalist countries, but are marked by extreme instability.

(4) Capitalism inevitably gives rise to a growing lag of agriculture behind industry and makes deeper and sharper the antithesis between town and country. The monopoly of private property in land withdraws from agriculture in the form of ground-rent and unproductive outlays on the purchase of land vast resources which go to finance the parasitic consumption of the landowning class and hinder the development of the productive forces of agriculture.

(5) The main mass of the peasantry is doomed under capitalism to suffer ruin and want. The fundamental interests of the proletariat and of the exploited masses of the peasantry coincide. Only in alliance with the proletariat and under its leadership, through a revolution which abolishes the capitalist system, can the working peasantry free itself from exploitation and poverty.

XV. The National Income