 surplus value, industrial capital gets industrial profit, commercial capital gets commercial profit, money capitalists get interest and now the final and fourth form or fragment of surplus value is rent. We will now try to understand the origin of rent. The broad argument that Marx is making in volume 3 about rent is the following. In capitalist production there is often the need to use natural resources, resources which are non reproducible so whose supply cannot be increased when the demand increases. An example of such a resource is land. Moreover by mid 19th century land or resources like land which could be used in the process of capitalist production had already been completely taken over by private ownership. So all these land was now owned by private was under private ownership. So if capitalist production can use or has the use of that resource, then the owner of that resource can withhold the use of that resource unless the owner gets a part of the surplus value and the part of the surplus value that is thereby appropriated by the owner of the resource for making available the resource to be used in capitalist production is precisely what is rent. Now to understand the details of how rent emerges, let us go back to the example that we have used earlier. The example with 5 sectors to understand the details of Marx's logic about the emergence of rent. So let me remind you quickly our economy has 5 sectors. Sector 1, the constant capital is 80, variable capital 20, surplus value 20, therefore the value of output is 120. Similarly, sector 2 has 70, 30 as constant and variable capital, surplus value is 30 so the value is 130. Sector 3 has 60 and 40 as constant and variable capital, therefore the total output's value is 140, sector 4 has 85, 15 and therefore the value of the output is 115 and sector 5 has 95 and 5 and therefore the value of the output is 105. Now the constant capital as a ratio of the variable capital is the organic composition of capital. So the organic composition of capital for sector 1 is 4, for sector 2 is 7 by 3 which is 2.33. The organic composition for sector 3 is 60 by 40 which is 1.5 and for sector 4 it is 85 by 15 which is 7.6 and for sector 5 it is 95 by 5 which is 19. So we can see that the organic composition of capital across sectors vary and therefore we can divide sectors into sectors which have high and low organic composition of capital. The sector with the lowest organic composition of capital is sector 3. Now recall what does it imply about the amount of surplus value generated, the implication of low organic composition of capital. A sector which has low organic composition of capital generates more surplus value per unit of capital invested than a sector which has high organic composition of capital and that is really reflected here. The total value of the output produced in sector 3 is 140 that is the lowest organic composition of capital sector. On the other hand the total value of the output produced in sector 5 is 105 which is the highest organic composition of capital sector. This column gives us the price of production. The price of production let me remind you is the price which ensures that every sector earns the same average rate of profit in this case 22 percent. So the price of production here is 120 and so on for all the sectors. What does that mean is that in the process through which the price of production emerges there is a redistribution of surplus value. The redistribution of surplus value is shown here. Those sectors which have negative entries are the sectors which lose surplus value. Those sectors which have the positive entries have sector are sectors which gain surplus value. So therefore, sector 5 for instance which is a high organic composition of capital sector gains 17 units of surplus value whereas, sector 3 which is the sector which the lowest organic composition of capital loses 18 units of surplus value. Now that is the beginning of our discussion of rent. This sector which has the lowest organic composition of capital sector loses surplus value when it participates in the process of redistribution of value and surplus value. It participates in the process of redistribution of surplus value because capital can move into that sector. So it has low organic composition of capital and therefore, it generates high amounts of value and therefore, it generates more than the average surplus value that is generated in the economy and it is that extra amount of surplus value that is lost to other sectors in the economy in the process of the emergence of the prices of production and the average rate of profit. Let us say that this sector is precisely agriculture. Agriculture during Marx's time had these two properties. It had low organic composition of capital. So low ratio of C and C to V. Moreover, since agriculture used land as the most important factor or input into production, moreover, since all the free land had been already used and since land was under private ownership, that fact created a barrier to the mobility of capital into agriculture because land could be taken up for production only by replacing somebody, some capitalist or some landlord who had ownership of that land. So there was low organic composition of capital and the peculiarities of land created barriers to entry of capital. When these two conditions hold, what that implies is the sector because it generates more than the average amount of surplus value and because there is barrier to the entry of capital into that sector, the sector is able to realize all the surplus value it has generated meaning this extra amount of surplus value which would have flown out of the sector if there were no barriers to the entry of capital remains within this sector. And it is precisely this extra surplus value what Marx calls surplus profit. Surplus profit is the amount of surplus value that is in excess of the average rate of profit, the average surplus value that is generated if we use the average rate of profit prevailing in the whole economy. In this specific case, the amount of surplus profit is precisely 18 units of surplus value which move out of the sector. So if agriculture had these two characteristics, then what would happen is that agriculture would be able to realize the total of 40 units of surplus value it generates. Since there is barrier to the entry of capital, it would not participate in the generation or the emergence of prices of production and therefore, instead of losing that 18 units of surplus value to the rest of the economy, it would be able to realize the whole of the 40 amount of surplus value that is generated. So therefore, in effect what would happen is this 40 amount of surplus value would be divided between the capitalist farmers. The capitalist farmer would get 20 units of 22 units of surplus value and the landlord would get 18. This 18 would be the rent income of the owner of the land. This 20 would emerge as the profit of the capitalist who is organizing agricultural production using the land. Now why would the capitalist agree to give up 18 units of surplus value because from the perspective of the capitalist, the capitalist puts in 100 units of value as the cost of production and gets 22 units of profit. So therefore, the capitalist from the capitalist perspective, the capitalist is able to get 22 percent rate of return on his investment which is precisely how much rate of return he could have got by moving to any other sector. So from the perspective of the capitalist as long as he gets 22 percent rate of return on his investment, he is as well off as he would be in any other sector. Therefore it is possible for the landlord to bargain with the capitalist to say that he will not allow the use of his land unless he gets 18 units of surplus value. And it is the end point of this bargaining process which will lead to a splitting up of the total surplus value into these two parts. One part which is appropriated by the owner of the land as rent and another part which remains after rent has been paid which is exactly equal to the amount that would be necessary to give an average rate of return to the capitalist who is using the land to organize agricultural production. So this is the basic process that Marx describes in volume 3 of Capital. The essence of the process is that whenever there is a resource which is non reproducible whose supply cannot be increased just because demand has increased and if that resource is under private ownership and if that resource can be used for capitalist production then the owners of that resource will be in a position to bargain with the capitalist who use that resource in capitalist production to generate surplus value and the owners of that resource will be able to bargain away a part of that surplus value and that part of surplus value which is appropriated by the owners of that resource is precisely what is known as rent. Now let us zoom in into this agricultural sector because there are some additional factors that we need to think about. What we see when we zoom into agriculture the agricultural sector is that the whole plot of land is of course not owned by one landlord. The plot of land the total plot of land which generates this 40 units of surplus value is broken up into plots. So the land is broken up into plots and the plots are of different quality. So there is some plot which is very fertile and there is some plot which is less fertile. So as a result of the difference in the quality of the plots of land this total amount of rent that is appropriated by the owners of the land which in this case is 18 gets further divided among the owners of different plots of land and that further division rests on two principles further division of the total rent into two fragments which are appropriated by different owners of plots of land based on two principles. One the fertility or the quality of the plots of land and on the amounts of capital invested. So depending on the quality of the plot of land and landowner owns and depending on how much capital he has invested he will get a larger or smaller fraction of the total rent that will be appropriated by all the landowners taken together. Now this rent that we have seen is precisely this surplus profit the profit that is available to agriculture which is over and above the average rate of profit. Now Marx's analysis also shows us that this surplus profit which is precisely which is appropriated as rent by landowners can be broken down further into three parts. What Marx calls differential rent of variety one differential rent of variety two and differential and absolute rent. So let us look at those three components of this total rent. So for our analysis we will think of agriculture as having different plots of land. So this is plot one this is plot two this is plot three let us say we have arranged all the plots of land in increasing order of quality. So this is the worst quality plot and this is the best quality plot. The worst quality plot will be important because it becomes the benchmark against which we will be able to compare all other plots of land. Let us say alpha is the average rate of profit in the economy. Now on any plot of land the i-th plot of land where i stands for a general number could be 1 2 3 4 or any number n for the i-th plot of land the amount of constant capital invested is C i amount of variable capital invested is V i. So the subscript identify the land that we are thinking about. If alpha is the rate of profit the average rate of profit and R i is the rate of profit earned by capital invested on that plot of land then the surplus profit is the profit that could be earned by the capital if it earned that average the rate of profit that is earned on that plot minus the rate of profit the amount of profit which would be earned if that capital amount earned the average rate of profit prevailing in the economy. So this is precisely what we have called the surplus profit and this it is this amount that is appropriated as rent. So this is nothing but the total amount of rent. Now we can break up this total amount of rent into 3 parts. One is the amount of rent that is known as differential rent of variety 1. So differential rent of variety 1 comes from comparing the rate of profit earned on plot i to the rate of profit earned on the benchmark plot of land. So this is known as differential rent of variety 1. Second is differential rent of variety 2 which compares the amount of capital invested on the ith plot versus the amount of capital invested on the worst plot that is the benchmark plot multiplied by the average rate of profit earned on the worst plot in excess of the average rate of profit earned on the in the rest of the economy. This is known as differential rent of variety 2 plus there is the third the the final third component of rent which is what is called the absolute rent which is the surplus profit earned on the benchmark or the worst plot of land. So the total rent can therefore be broken up into differential rent of variety 1 plus differential rent of variety 2 plus absolute rent. So on any plot of land the total rent is composed of these three components. Now you can immediately see that on the worst plot of land both differential rent of variety 1 and differential rent of variety 2 will be 0. Why because on plot when we are looking at the worst plot of land the rate of profit earned on that plot of land is equal to R 1 therefore this quantity will be 0. On the other hand when we look at this the amount of capital invested will be exactly equal to C 1 plus V 1. So this is 0 and therefore this will become 0. Therefore on the worst plot of land the only amount of rent that will remain is this. So therefore we can go back and understand absolute rent as the amount of rent that is earned by the landlord who owns the worst plot of land. On any plot of land which is which is better than the worst plot the amount of rent earned is a slightly more than that and that amount that is more than the worst plot of the rent earned on the worst plot of land is known as the differential rent. The differential rent is the rent that comes from the difference in the quality of any plot of land vis-a-vis the worst plot of land. So that completes our analysis of rent which is the final fragment into which surplus value breaks up in a capitalist economy. Let me end by making two points. One question that immediately will come to mind is that this whole analysis rests on the assumption that the organic composition of capital in agriculture is low. If we look at the agricultural sector in much of the capitalist world today it is almost as capital intensive as any other sector. Therefore one needs to ask the question whether the analysis of rent in volume 3 is applicable to capitalist agriculture or in much of the advanced capitalist country today and the answer is yes. Even though Marx had worked with the assumption of low organic composition of capital that is not essential for his argument. What is essential is for there to be some mechanism through which a price of the commodity produced using that resource emerges which is higher than the price of production. Therefore if that other mechanism is available even if that economy does not have a low organic composition of capital it will be able to regenerate some extra surplus value extra with relation to the average rate of profit and that extra can be appropriated by owner of resources as rent. Secondly Marx's analysis really focus mostly on agriculture but it should be clear that the analysis can be applied to other sector of the economy as well. What is essential is that the sector uses some resource for producing commodities through which surplus value can be realized. So for instance oil and natural gas, real estate and other sectors today which rely on the use of natural resources can be equally well analyzed using the framework developed by Marx in volume 3 of Capital. With that we come to the end of the argument developed by Marx in the 3 volumes of Capital. We have understood the processes related to the generation of surplus value that was volume 1, processes relevant to the realization of surplus value that was the object of analysis in volume 2 and the processes relevant to the distribution and redistribution of surplus value that was the object of analysis in volume 3. So by the end of our analysis of the 3 volumes of Capital we get a pretty comprehensive picture of the structure and dynamics of capitalist economies. One of the key things that we take away from this discussion is that all the types of income that is earned by different fragments of the ruling class like profits like rent like interest like dividend all of those are really forms of surplus value. And we know from our analysis of volume 1 that surplus value is just the monetary representation of the unpaid labor of productive workers. So finally the whole edifice of income of the ruling class rests on the unpaid labor of productive workers. This is the key insight that Marx wanted to drive home through his analysis of the 3 volumes of Capital that just like other forms of class society capitalism is a class society and therefore it rests on the exploitation of one part of society by the other. The other thing Marx wanted to analyze and emphasize was the deeply contradictory and ambivalent nature of capitalism. On the one hand it generates enormous productivity generates enormous technological change. On the other hand since technological progress and change is harnessed to generating profits it completely ignores the possibilities that is opened up by technological change for larger human welfare. It ignores the effect of technology on the two primary sources of wealth nature and labor and therefore we cannot but end by agreeing with Marx that the only way to realize all the potential opened by capitalism is to transcend it.