Differential Rent

A form of capitalist ground-rent. It is the surplus-profit obtained by agricultural capitalists from the management of superior soil, a form of ground-rent appropriated by the landowner, and is the difference between the individual price of production of agricultural products and the social price of production.

The conditions for the emergence of differential rent are the differences in the quality of soil. It is rooted in the fact that superior soil is limited and its management is monopolized. Because of differences in the fertility of the soil, its geographical location and production conditions, agricultural capitalists invest capitals of equal size in different classes of soil to obtain different yields. The individual price of production of the product is lower than the social price of production due to better production conditions and higher productivity of labor of superior soil, thus generating surplus-profits. The social price of production of agricultural products is not determined by the individual price of production of superior or middling soil, but by the individual price of production of inferior soil. If the social price of production of agricultural products is determined by the individual price of production of middling soil, then the agricultural capitalists who manage inferior soil do not get the average profit, so that no one will be willing to manage inferior soil any more. Because of the monopolistic nature of land management rights, when the agricultural products produced by the superior and middling soil cannot meet the demand of the society, the supply of agricultural products exceeds the demand, which leads to an increase in price, and the price will only increase to ensure that the capitalists managing the inferior soil get the average profit, so that the supply of agricultural products is basically balanced. In this way, agricultural capitalists managing inferior soil make average profits, while agricultural capitalists managing superior or middling soil obtain varying amount of surplus-profits, which form differential rents and are passed to landowners.

The differential rent is essentially the surplus-profit in agricultural production, which, like the surplus-profit in industry, is a part of the surplus-value created by agricultural workers. The difference between the qualities of soil is only a natural condition for the formation of differential rent. Differential rent arises because of the limited availability of superior soil and the formation of monopoly of management rights. The surplus-profit in agriculture is transformed into differential rent because of the monopoly of property in land.

Differential rent can be divided into differential rent I and differential rent II depending on the conditions of formation. Differential rent I is due to the different degree of fertility of soil or geographical location, the agricultural capitalist who manages the better soil or the land closer to the market can make a surplus-profit above the average profit. Moreover, due to the limited amount of superior soil and the monopoly of management rights, a more stable surplus-profit will be made, which is transformed into differential rent I. Differential rent II means that in the same land, due to the difference in the productivity of labor formed by successive additional investment, the investment with higher productivity will make surplus-profit. Differential rent I essentially coincides with differential rent II, both are transformed from the surplus-profit formed by the difference between the individual price of production of agricultural products and the price of social production. The differential rent II is based on the premise and foundation of the differential rent I. Differential rent I is generally incorporated into the rent amount specified in the lease contract and is appropriated by the landowner. Differential rent II is the surplus-profit resulting from additional investment before the expiration of the lease contract and belongs to the agricultural capitalist. The landowner can raise the rent at the next lease and pocket this portion of the differential rent II. As a result, the agricultural capitalist and the landowner often engage in a heated dispute over the issue of whom differential rent II belongs to.