The essence of capitalist ground-rent. Ground-rent and rent.

Ground-rent assumes the form of a certain sum of money, which the landlord draws annually by leasing a certain plot on our planet. We have seen that every particular sum of money may be capitalized, that is, considered as the interest on an imaginary capital. For instance, if the average rate of interest is 5%, then an annual ground-rent of £200 may be regarded as interest on a capital of £4,000. Ground-rent so capitalized constitutes the purchase price or value of the land, a category which like the price of labour is prima facie irrational, since the earth is not the product of labour and therefore has no value. But on the other hand, a real relation in production is concealed behind this irrational form. If a capitalist buys land yielding a rent of £200 annually and pays £4,000 for it, then he draws the average annual interest of 5% on his capital of £4,000, just as if he had invested this capital in interest-bearing papers or loaned it directly at 5% interest. It is the expansion of a capital of £4,000 at 5%. On this assumption, he would recover the purchase price of his estate through its revenues in twenty years. It is in fact the purchase price-not of the land, but of the ground-rent yielded by it — calculated in accordance with the usual interest rate. But this capitalization of rent assumes the existence of rent, while rent cannot inversely be derived and explained from its own capitalization. Its existence, independent of its sale, is rather the starting-point for the inquiry.

It follows, then, that the price of land may rise or fall inversely as the interest rate rises or falls if we assume ground-rent to be a constant magnitude. If the ordinary interest rate should fall from 5% to 4%, then the annual ground-rent of £200 would represent the annual realization from a capital of £5,000 instead of £4,000. The price of the same piece of land would thus have risen from £4,000 to £5,000, or from 20 years' to 25 years' purchase. The converse would take place in the opposite case. This is a movement of the price of land which is independent of the movement of ground-rent itself and regulated only by the interest rate.

In practice, naturally, everything appears as ground-rent that is paid as lease money by tenant to landlord for the right to cultivate the soil. No matter what the composition of this tribute and no matter what its sources, it has this in common with the actual ground-rent — that the monopoly of the so-called landed proprietor of a portion of our planet enables him to levy such tribute and impose such an assessment. It has this in common with the actual ground-rent — that it determines the price of land, which, as we have indicated earlier, is nothing but the capitalized income from the lease of the land.