Differential Rent

under capitalism, additional profit which arises as the result of the expenditure of labor on the average and better portions of land or as a result of increasing productivity of supplementary capital investments and which is appropriated by the landowner; one of the forms of land rent generated by the monopoly in land as a factor of the capitalist economy. Its source is the amount by which surplus value created by the labor of hired agricultural laborers exceeds average profit; this surplus arises as a result of higher productivity of labor on comparatively superior plots of land (more fertile land, lands closer to the place of sale, or lands in which additional capital has been invested).

There are two forms of differential rent. The first form is connected to differences in the fertility and location of plots of land. The individual production price of a unit of agricultural produce that comes from a better portion of land turns out to be lower, because with other conditions being equal the labor applied to more fertile soil is more productive and because expenditures for the delivery of agricultural goods to the market are lower for lands situated relatively closer to the market. Agricultural goods are sold, meanwhile, on the basis of the social price of production, which in agriculture expresses the social value of these goods and which is determined by the conditions of production on the poorer plots of land.

This situation arises because the quantity of land is limited, and the agricultural produce created only on the comparatively superior lands is insufficient to meet the social demands for this produce: the market also demands the produce created on the average and poorer lands. Capitalist farmers operating on the better and average lands sell their produce at market prices and receive additional profits, which, on the basis of the rights of property in land, are appropriated by the landowner (regardless of whether the owner is a private individual or a capitalist state) in the form of differential rents. Historically, this form of differential rent arose earlier than the second form; it grows with the development of extensive agriculture and also as industrial centers and the system of communications develop.

The second form of differential rent is the additional profit that arises as a result of successive capital investments in the land. It is indissolubly linked with the intensification of agriculture and is its most important economic result. The increased quantity and rate of this form of differential rent reflect the growth in productivity of additional capital investments, a growth which becomes basic and decisive in times of scientific and technical progress despite the so-called law of declining fertility of the soil. Until the lease terminates, the superprofit obtained as a result of additional capital investments goes to the tenant farmer. But when a new lease is signed, the landowner, by virtue of the supremacy of the monopoly of private property in land, appropriates this additional profit by increasing the rental fee; thus, he obtains a portion of this form of differential rent. This is the basis of the struggle between tenant capitalists and landowners over the rental period.

Differential rent and rent relations persist under socialism. The material basis of differential rent is the supplementary net income from comparatively superior and conveniently located lands or from the increased productivity of supplementary investments. The existence under socialism of commodity-money relations and the monopoly use of land as a factor of the economy determine the transformation of this income into differential rent and lead to the emergence of rent relations. However, the socioeconomic content of differential rent where socialist property in the means of production is dominant undergoes a fundamental change. The socialist system eliminates social class antagonisms in rent relations, the antagonisms that inevitably arise between landowners, capitalist entrepreneurs, and wage laborers under the capitalist mode of production.

The source of the first form of differential rent is the supplementary net income received as a result of the higher productivity of labor on land that is superior in terms of fertility and location. Since comparatively poorer lands must also be brought into agricultural circulation in order to increase overall production and satisfy social demand, it is essential that planned pricing take into account the compensation of expenditures and the receipt of the necessary profits by farms using such lands; otherwise the profit-based incentives to cultivate these lands would be undermined. Kolkhozes and sovkhozes utilizing average and superior lands receive supplementary income in the form of the difference between the social price and the individual value of a unit of produce. Since the formation of this income results not from the labor efforts of individual collectives but rather from the social factors of reproduction, this income is appropriated by the state in the form of differential rent on the basis of the right of the national ownership of land. In this regard, the antagonistic nature of such appropriation is completely eliminated, since differential rent becomes the property not of the class of landowners but rather is included in public funds and is used in the interests of the society as a whole, including the planned improvement of agriculture. This differential rent of the first category is extracted by the state through purchase prices, the differentiation of purchase plans, and the income tax.

Differential rent of the second category arises as a result of the varying productivity of supplementary investments: its size and rate increase systematically under conditions of intensification and scientific-technical progress in agriculture; it remains almost completely with the agricultural enterprises.

The various relations of land property that have become established in the socialist countries determine the various actual forms of the distribution of differential rent. However, the essence of rent relations and the general principles of the distribution of differential rent remain the same independent of whether all land is nationalized or part of it is the property of cooperatives. The effective application of the mechanism of the distribution of differential rent—above all, scientifically based pricing, which takes into calculation the specific character of agriculture—is important for the correct economic regulation of rent relations under socialism.

Differential rent exists not only in agriculture but in the extraction industry and construction; it is formed as a result of differences in the productivity of labor produced by inequality of natural conditions for the exploitation and use of minerals, forest lands, and the like. Under socialism, differential rent in the extraction industry belongs to the society as a whole and is used in its interests, including the development of the coal, ore, and other sectors. As a value category, differential rent will cease to exist with the disappearance of commodity production.