The Price of Land and Marxist Economics

[Sympo]

Does Marx argue that land only has a price because of the potential value that can be created in the nearby area?

Let's say there's some land near Disneyland. Is the land only sold for a high price because of the potential profit that will (according to the buyer) be made if one builds a diner there where tourists can eat on the way to/from Disneyland?

Here is a dialogue that I've written in order to illustrate this possible explanation of land having a price:

Stranger: Why did you buy this land for such a high price?

Capitalist: I did it because I can build a diner here.

Stranger: But can't you build a diner on land that is cheaper, for example land in City of Nowhere?

Capitalist: Of course I can. But the reason this land is much more expensive here than in City of Nowhere is because there's a giant Disneyland here. If I build a diner here, a good chunk of the tourists are probably going to enter my diner and spend their money on food that's produced by my workers. If I bought land in City of Nowhere, I wouldn't be able to make the profit I can make here!

[ALB]

Sort of. The price of land is the capitalisation of the rent that the land can be expected to bring in over a given period of years, which will depend on its location, e,g. nearness to something like Disneyland as you say but it could also be a population centre or railway station. This is not a particularly Marxist theory but is generally accepted. Marx only comes into it because, according to his labour theory of value, land, not being a product of labour, has no value, but only a price.

[Sympo]

I've read that term "capitalisation of rent" before and I haven't got a good grasp of its meaning. What does "capitalisation" mean in this context? I don't know how ignorant this question is but what would be the answer to this question: isn't land useful to human beings? Don't we need land in order to produce commodities?

[Anonymous]

'If the average interest is 5% for example, an annual ground-rent of £200 may be viewed as the interest on a capital of £4,000. It is the ground-rent as capitalised in this way that forms the purchase price or value of the land,…'Capital 3, Pelican edition, p.760As ALB points out there is nothing particularly Marxist about this explanation.Given that capitalists use land to grow food, and build factories upon to produce commodities, yes, it probably has a use-value. But don't quote me.

[Sympo]

How can it (and paintings and artifacts for that matter) have use-value and a price, while at the same time have no exchange-value?Is the LTV limited to commodities?Land is not a commodity because it is not a product of human labour, and it cannot be reproduced.Can't we claim that non-commodities can have value while at the same time claim that the LTV is correct?

[DJP]

Exchange-value and “value” in the Marxian sense are two different things.Exchange-value is price.Value is the amount of socially necessary abstract Labour time needed to reproduce a commodity.

[ALB]

We've been over this many times here, Sympo. The Marxian Labour Theory of Value is that the value of a commodity reflects the amount of socially necessary labour time that would be taken to reproduce it, which is not necessarily the same as that taken to produce it. So it only applies to what can be reproduced by human labour. Which excludes works of art because they can't be reproduced (and whose price is determined by demand in relation to limited supply) while (virgin) land is excluded because it is not even a product of human labour. These are exceptions thst prove the rule.In fact, the price of land is not really even the monetary equivalent of an exchange value. Louis Boudin explained this in 1907 in chapter 5 on "The Labor Theory of Value and Its Critics" of his The Theoretical System of Karl Marx:

Quote:

Land as well as all other objects which are not produced by human labor has no value. This may sound strange in face of the fabulous prices that we know are sometimes paid for land. But these very fabulous prices are proof that the price paid does not represent the value of the land but something else entirely. Marx proves conclusively that rent is not the value of the land, and that the price of land is admittedly merely a "capitalization" of the rent. Marx calls attention to the fact that…  the price of land is a multiple of the rent by a certain number of years, the number depending on the prevailing rate of interest. In other words, it is not the value of the land that the price nominally paid for it represents but the price of the rent. The transaction which formally and nominally appears as a sale of land, is in reality merely the discount of the rent. It differs absolutely nothing in character from the purchase of an annuity, which is not an exchange of present values but a mere banking operation. This is well known to real estate operators.

[Sympo]

If a piece of land is considered completely useless for commodity production, would it still have a price?

[DJP]

Sympo wrote:

If a piece of land is considered completely useless for commodity production, would it still have a price?

 Only if someone bought it.

[Sympo]

DJP wrote:

Only if someone bought it.

What would determine its price if only one person wanted to buy it (supply and demand in harmony)?

[ALB]

Yes but that also applies even if ownership of the land can command a rent. 

[DJP]

Sympo wrote:

What would determine its price if only one person wanted to buy it (supply and demand in harmony)?

The price would be whatever the buyer was willing to pay and whatever the seller was willing to accept.You can't increase the supply of a certain piece of land, space is not physically reproduceable..

[Sympo]

I think I might be getting close to understanding. Is this correct:Commodities are exchanged for eachother in stable ratios. That means that they must share some common characteristic. The idea that labour time determines this ratio is the only reasonable explanation, seeing as we cannot say that a broom is "more useful" to society than a pen. Usefulness of different objects cannot be measured, but labour time can be measured. Also, the LTV is the only thing that can explain what determines the price of a commodity when supply and demand are equal. The LTV is not meant to explain prices for every object on a market.

[DJP]

I think that's pretty much the gist of it. Yes.

[Author]

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