Munro chapter 4 continued1
Marx’s Theory of Land, Rent and Cities
Munro, Don
Bringing together Marx’s original writings on land, rent and the landed property class, this book applies them to contemporary cities in the Global North and Global South. The book shows how landed property, and not just labour and capital, directly affects urban economic development, the built environment, urban governance and the quality of life of people living in cities. It also shows how land, rent and class transform cities in different ways depending on the indigenous, Asiatic, feudal, capitalist or other modes of production that mould the form and substance of cities. Presenting a new comparative approach, this book provides novel insights into the origins of, and solutions to, many of today’s urban problems including urban enclosures, exclusive property development, the financialisation of land, land grabbing, and climate change.
“https://library.oapen.org/handle/20.500.12657/60229”
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In Marxian economics and preceding theories,[1] the problem of primitive accumulation (also called previous accumulation, prior accumulation, or original accumulation) of capital concerns the origin of capital and therefore how class distinctions between possessors and non-possessors came to be.
This primitive accumulation plays in political economy about the same part as original sin in theology. Adam bit the apple, and thereupon sin fell on the human race. Its origin is supposed to be explained when it is told as an anecdote of the past. In times long gone-by there were two sorts of people; one, the diligent, intelligent, and, above all, frugal elite; the other, lazy rascals, spending their substance, and more, in riotous living. (…) Thus it came to pass that the former sort accumulated wealth, and the latter sort had at last nothing to sell except their own skins. And from this original sin dates the poverty of the great majority that, despite all its labour, has up to now nothing to sell but itself, and the wealth of the few that increases constantly although they have long ceased to work. Such childishness is every day preached to us in the defence of property.
— Capital, Volume I, chapter 26[9]
What must be explained is how the capitalist relations of production are historically established; in other words, how it comes about that means of production become privately owned and traded, and how capitalists can find workers on the labour market ready and willing to work for them because they have no other means of livelihood (also referred to as the “reserve army of labour”).
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Chapter 4 continued
Primitive accumulation
The development and growth of the feudal mode of production occurred over centuries through social processes that were sometimes political, legalistic and bureaucratic, and at other times were bloody and violent. These changes occurred as a result of the power struggles within the contradictory social relations between monarchs and vassals, landlords and direct producers, cities and vassals, and guild master artisans and journeymen and apprentices. These economic and political struggles also drove the development of technology, changes to working conditions, rural to urban migration, urban development, and changes to trade and finance. It took centuries to establish new types of property ownership and new societal and workplace divisions of labour, new law and other institutions, and new workforce skills.
The crucial stage of economic change called primitive accumulation was to dispossess self-sufficient peasants from their land and their tools.
There was ‘the complete separation of the labourers from all property in the means by which they can realise their labour’.28 This separation of the direct producers from their means of production was accompanied by the dissolution of all the traditional ‘guarantees of existence afforded by the old feudal arrangements’. As a result, almost all ex-agricultural workers, property-less and no longer able to live by working on rural land, became a new mass labour force that had no choice but to migrate to cities in search for work. These asset-less ‘free’ workers were left with no economic choice but to sell their labour power to the owners of the means of production.
In other words: ‘The so-called primitive accumulation, therefore, is nothing else than the historical process of divorcing the producer from the means of production. It appears as primitive, because it forms the pre-historic stage of capital and of the mode of production corresponding with it.’29
Primitive accumulation also involved consolidating economic and political power in the hands of the owners of land and capital.
In Western Europe, for example, some landowners consolidated their landholdings into ever larger estates, while others used their land for industrial purposes by building factories, warehouses, transport infrastructure and other industrial facilities that could be used for mining, forestry, flour milling, tanneries, toolmaking, transport and so on. In addition, the state’s role expanded, especially through the availability of credit and finance. Public debt was crucial: ‘with the stroke of an enchanter’s wand, [public debt] endows barren money with the power of breeding and thus turns it into capital, without the necessity of its exposing itself to the troubles and risks inseparable from its employment in industry or even in usury.’30 Public debt, new laws to facilitate new forms of credit and mortgages, new international trading and shipping organisations protected by the state’s naval forces, the establishment of great banks, the growth of stock exchanges and other new financial institutions and practices were all enabled by the state either directly (through the fiscal practices of the state) or indirectly (through the creation of legislation, policing and courts to provide security and certainty to capitalist investment, trade and operations). Primitive accumulation in Western Europe also involved stripping people and communities of their traditional livelihoods; land grabbing; the forced movement of people from rural communities to overcrowded, polluted and dangerous cities; and the establishment and enforcement of new forms of control over the urban workforce by capitalists. It was often a violent process: ‘the history of this, their expropriation, is written in the annals of mankind in letters of blood and fire.’31 There was always resistance by the dispossessed workers,32 and the state often expanded, trained and armed its police force and its military to enforce the dispossession of working people at home, defend colonialisation, protect new trade routes, and enforce the new capitalist laws over private property, employment, trade, commerce and credit.
The process of primitive accumulation was not limited to seventeenth- and eighteenth-century Europe. It continues today, especially in the Global South.
This can be seen in the large-scale land acquisitions that take place through the buying, leasing, bribery or outright theft of land; the dispossession of self-sufficient First Nations people, agricultural workers, peasants and others from their customary or communal homelands, water reserves, forested areas, fishing reserves and mining areas; the immigration of people from their traditional lands in the search of paid work; and the growth of cities.
This contemporary process of primitive accumulation has been actively promoted by the World Bank and the International Monetary Fund, among others. They have produced policies and provided funding to countries to dispossess people living in self-sufficient, customary or feudal communities; to privatise land and institute administrative ‘reforms’ to document the changes in land title; to encourage landless workers to move to cities to find work; to establish ‘free’ markets and international trade (rather than fair markets and trade); to limit government regulation of the economy and markets; and to undermine resistance or collective action against these ‘reforms’.33
In short, primitive accumulation is a stage of economic development where the feudal mode of production in Europe slowly transformed into the capitalist mode of production, and which in contemporary times is being deliberately fostered and funded on many Global South nations as if it were some novel ‘national development strategy’.
Whether in feudal Europe or today’s Global South, ‘The expropriation of the agricultural producer, of the peasant, from the soil, is the basis of the whole process.’34
Capitalist mode of production
The capitalist mode of production is even more distinctive in the way it establishes and uses land, rent and cities to produce the goods and services needed for the sustenance of people and the reproduction of the capitalist society.
There are four essential features of the capitalist mode of production.35
First, the factors of production (land, labour and capital) are owned privately.
Second, production is for profit; that is, companies invest their capital (to purchase natural resources, labour and other forms of capital such as tools or machinery) to produce commodities (goods and services that are useful for consumers) but only if those goods and services can be sold for a profit.
Third, companies are compelled by economic pressures to reinvest that profit into additional production (or face a loss in the value of their capital because of competition from other capitals, struggles by labour for higher wages, demands of financiers for higher payments of interest and landlords for higher rent, improvements in productivity from new technologies, depreciation, inflation, demands from the state for higher taxes, and so on). Reinvestment of capital is not a choice; it is an economic (capitalist) imperative.
Fourth, in this continuous cycle of investment, production, profit-making and reinvestment, the source of all profit, and economic growth more generally, is the unpaid surplus labour that workers provide during the phase of production, but which is appropriated by capitalists.
This cycle of investment, profit-making and reinvestment is often summarised as a three-phase cycle with the investment, production and realisation of capital. Symbolically, these phases are summarised as:
M — C … P … C’ — M’
The first phase, investment, is the M — C phase. Here banks (or capitalists, shareholders and other investors) advance an amount of money (of value M) to a capitalist who uses it to purchase commodities with an equal value C. These commodities, which will be inputs to production, include raw materials, technology, premises and the labour power of workers.
The second phase is production: the … P …. phase. Here, the direct producers (workers) use their labour to manufacture the input commodities ( C ) into new commodities which have an expanded value (C’). The value of the final commodities (C’) has expanded because although each direct producer gets paid a wage in return for the labour they added in production, the direct producer does not get paid for the full amount of the value they added; that is, the value of the final commodities (C’) has expanded from the value of the original C because labour is only partly compensated for, and unpaid, surplus labour (embodied in the value of the new commodities) is captured by the capitalist.
In the third phase, realisation (the C’ — M’ phase), the capitalist sells their commodities (C’) for an equal value of money (of value M’) and keeps the profit (represented by M’ — M). This cycle is then repeated.
The circuit of capital accumulation can be described in more concrete terms by considering the activities of industry sectors. Banks provide loans of a certain amount (M) to productive industry sectors (agriculture, mining, manufacturing, construction and the communication and transport)36 which invest the money, exchanging it for an amount of commodities of the same value ( C ), which are transformed by labour in production (P) into higher-value commodities (C’), which are sold for money-plus-profit (M’).
The exploitation of labour, the exchange of unequal value, is at the heart of capitalism. In capitalism, workers expect an equal exchange where they provide their labour to produce commodities of a certain value and in return get paid a wage that equals the value they created.
On the other hand, the capitalist wants to maximise the value of the commodities produced and minimise the value of the wages paid. What appears to be an equal exchange, where the value of the wages paid to the workers equals the value of the commodities they produced, is in fact an unequal exchange because the workers are compensated with a value of wages which is less that the value they produced.
The significant difference between the capitalist mode of production and the ancient, Asiatic and feudal modes of production is that in capitalism the extraction of the unpaid surplus labour (surplus value) occurs in production, anonymously and without discussion, while in the other modes of production unpaid surplus labour is extracted in a public, transparent and political process where the landowners, emperor and landlords explicitly and visibly command the direct producers to provide surplus labour and threaten legal consequences or other retribution if they do not.
The model of M — C … P … C’ — M’ may suggest a smooth, circular and cumulative flow of capital from M to M’. In reality, capitalist economies are not harmonious, balanced or continuous but crisis-ridden.
Breakdowns, disruptions and uneven development can occur at any point along the M — C … P … C’ — M’ cycle, and within firms, between industries and across the economy as a whole. For example, at the level of the individual firm, capitalists struggle against their workforce to cut costs by reducing the size of the workforce, cutting wages and/or replacing labour with new labour-saving technology. At the level of an industry sector, ‘each individual capital strives to capture the largest possible share of the market and to supplant its competitors and exclude them from the market’,37 and if they can’t succeed, firms have no choice but to cut costs, restructure or merge with other companies to improve productivity, replace their labour with technology, or enter bankruptcy. Across the economy as a whole, capital invested in industry sectors with low rates of profit will exit and move to more profitable sectors, causing economic restructures.
Capitalism is continually disrupted by overproduction, underconsumption and class struggle, and the tendency across the economy for the rate of profit to fall38 causes frequent cycles of unemployment, bankruptcies, recessions, financial crises and economic restructuring which necessarily arise from the everyday operation of capitalism.39
Capital does all it can to maximise its profitability by increasing the exploitation of its labour, stifling competition (and establishing monopolies) and undertaking foreign trade,40 not to forget lobbying governments to ‘protect’ favoured industries, cut company taxes, provide subsidies and take other action to increase the profitability of industry.
The model of capitalism summarised above is merely Marx’s first version of the capitalist mode of production. Marx made several changes to make it a closer approximation to reality.
One change was to introduce the influence of land. As will be shown in the discussion of absolute rent and differential rent in Chapter 5, capital circulation (M — C … P … C’ — M’) takes place on land, and so the model is made more sophisticated to incorporate the fact that land is leased from landlords in return for rent.
Marx also made a second change to make the model a closer approximation to reality. When money capital is loaned to capitalists (the phase of M — C), the capitalists must eventually repay that loan in full and with interest. In this more sophisticated version of the general model, when the capitalist sells their commodities, a portion of the revenue earned is used to repay the loan and the interest on the loan.
In this introduction to the capitalist mode of production, it must be added that this continuous circuit of capital accumulation cannot go on for ever.
In each cycle, there is a tendency for the rate of profit to fall. That is, the amount of profit made each circuit, compared with the amount of capital being thrown into production, reduces over time.
When the economy gets to the point where capital can no longer expand, capital is devalued or destroyed, there are economic restructures and an economic crisis. It is beyond the scope of this book to explore the theories of capitalist crises, among which are those based on the falling rate of profit (originally developed by Henryk Grossman, Paul Mattick and Rosa Luxemburg), underconsumption (associated with Paul Baran and Paul Sweezy and the Monthly Review magazine) and class struggle (such as Harry Cleaver41 and Antonio Negri). However, what is significant for this book is that all these theories of crisis focus on the social relations between labour and capital and are silent on how land, rent and the landowning class contribute to, or counteract, capitalist crises.
Finally, it should be clear from this exposition of the cycle of capital accumulation that — unlike other modes of production — landed property is independent of, and not involved in, either the production of unpaid surplus value or its appropriation by capital. Instead, landed property can act as a barrier to the creation and circulation of unpaid surplus value; and landowners appropriate a portion of the unpaid surplus value (as rent, in return for the temporary use of their privately owned land). The ways landed property intervenes in the cycle of capital accumulation, through the processes of differential and absolute rent, are discussed in detail in Chapter 5.
Land and the capitalist mode of production
As indicated in the section on primitive accumulation above, dispossessing the majority of people of their property is essential for the establishment of capitalism: capitalism requires ‘the expropriation of the labourer from the conditions of labour, the concentration of these conditions in the hands of a minority of individuals, [and] the exclusive ownership of land by other individuals’.42 That is, the direct producers become ‘free’ (in the sense they earn an income by selling their own labour-power), while landowners acquire an income from their owner-ship of landed property, and capitalists acquire an income from their ownership of money, machinery, tools, materials, buildings and other capital assets.43
Much of Marx’s analyses of landed property in capitalism referred to the dominant land use of his time, agricultural land. He noted that capitalism encouraged land to be privatised and aggregated into large farms owned by a small number of landowners who then used the land to produce agricultural products for profit (rather than for use). For example, land in England that had once provided employment and sustenance for agricultural peasants and their families, and wealth for the landlord, was converted to enable the mass production of wool for sale for profit in the new commodity markets.44
The capitalist imperatives to make ever more profit forced these large farms to introduce industrial-scale, intensive production methods (such as chemical fertilizers, mechanised agricultural processes and other technologies) that could maximise the returns from, and minimise the costs of, agricultural production.45 With the introduction of labour-saving machinery, agricultural workers were expelled en masse from the land.
Both these actions, investing in new technologies on the land and expelling agricultural labour, had a direct impact on the growth of towns and cities: ‘They conquered the field for capitalistic agriculture, made the soil part and parcel of capital, and created for the town industries the necessary supply of a ‘free’ and outlawed proletariat’.46
Although most of Marx’s analyses of landed property in capitalism referred to agricultural land, he did make some references to urban land. In capitalist cities, Marx wrote, the capacity of urban landownership to appropriate rent from leasing out the use of the land to others for a limited period of time, was based on the same social relations and economic processes that applied to private ownership of agricultural land:
Wherever natural forces can be monopolised and guarantee a surplus-profit to the industrial capitalist using them, be it waterfalls, rich mines, waters teeming with fish, or a favourably located building site, there the person who by virtue of title to a portion of the globe has become the proprietor of these natural objects will wrest this surplus-profit from functioning capital in the form of rent.47
In his analysis of urban land, Marx distinguished between rent (paid for the use of land) and interest and amortisation on capital (which arose from investment in buildings and other forms of capital). This was illustrated by ‘a big building speculator in London’ who Marx discovered had told a Parliamentary Committee in Britain:
‘I think a man who wishes to rise in the world can hardly expect to rise by following out a fair trade … it is necessary for him to add speculative building to it, and that must be done not on a small scale; … for the builder makes very little profit out of the buildings themselves; he makes the principal part of the profit out of the improved ground-rents. Perhaps he takes a piece of ground, and agrees to give £300 a year for it; by laying it out with care, and putting certain descriptions of buildings upon it, he may succeed in making £400 or £450 a year out of it, and his profit would be the increased ground-rent of £100 or £150 a year, rather than the profit of the buildings at which … in many instances, he scarcely looks at all.’48
One of the key theoretical challenges of land in capitalism is to explain the source of the rent that is captured by landowners. Recall from Chapter 2 that the value of something is ‘the labour time socially necessary for its production’.49 Urban land (nature) is not produced by labour and therefore has no (economic) value, and cannot add any value to the final value of commodities.50 Thus, when an urban landowner leases a block of land for some urban purpose in exchange for rent, what is the source of that rent, and how does the landowner appropriate the rent from the capitalist and/or the direct producer? How this occurs is discussed in detail in the next chapter.
The landed property class
A recurrent theme in Marx’s writings on land concerns the existence and activities of the landed property class. He continually referred to the activities of land-owners, individually and collectively, in the ancient, Asiatic and feudal modes of production, and, in particular, to their exploitative social relations with the direct producers (slaves, serfs, peasants and so on), and their involvement within the polities of those communities and societies. Marx also wrote a little about the activities of the landed property class in capitalist societies. This was most explicit in his political writings on the French revolutions in The Class Struggles in France, 1848 to 1850; the longer analysis of this period, The Eighteenth Brumaire of Louis Bonaparte; Marx’s study of the first proletarian government in The Civil War in France of 1871 as well as publications such as The German Ideology. Marx planned to write much more on the issue of class in capitalism. He began a chapter on class with the following sentence: ‘The owners merely of labour-power, owners of capital, and land-owners, whose respective sources of income are wages, profit and ground-rent, in other words, wage-labourers, capitalists and land-owners, constitute the three big classes of modern society based upon the capitalist mode of production.’ It breaks off at this point.51
In one of his earlier writings, Marx made a distinction between a class-in-itself and a class-for-itself. Commenting on the situation in England in the mid-nineteenth century, he noted the economic conditions had given a large number of working people some common economic interests and a common opponent to struggle against. In their collective struggle (as a class-in-itself) to address their economic grievances, the mass of people began to unite into a class-for-itself, defending their common interests, and acting in a concerted and class-conscious way with a political struggle:
Economic conditions had first transformed the mass of the people of the country into workers. The combination of capital has created for this mass a common situation, common interests. This mass is thus already a class as against capital, but not yet for itself. In the struggle, of which we have noted only a few phases, this mass becomes united, and constitutes itself as a class for itself. The interests it defends become class interests. But the struggle of class against class is a political struggle.52
That is, as capital expanded and increasingly interfered in the lives of ever more people, the shared experience of economic struggles against capital would develop within working people a self-conscious awareness of their circumstances: that is, ‘with the accumulation of capital, the class-struggle, and, therefore, the class consciousness of the working men, develop’.53
This process was not automatic or guaranteed. For example, Marx noted that small-landholding peasants in France once formed an enormous mass of people who all lived in similar conditions with similar interests.
However, they did not form into a class-for-itself.54 Their mode of production isolated them from one another and limited their interaction and discussion of their common work circumstances. This situation was reinforced by the poor communication infrastructure at the time, and the lack of resources (the poverty) of the peasants. Each individual peasant family was almost self-sufficient, directly producing most of its sustenance needs, living off the land with limited social relationships, rather than through interactions with others in society. To the extent that the peasants and their families did work together with others, it was in local markets or local towns rather than in cities, regions or nationally. Millions of families living under these common conditions of existence had a common mode of life, economic and political interests, and culture: they had many of the conditions for the existence of a class-in-itself. However, their potential to form a class was undermined by the merely local interconnection among these small-holding peasants, their separation from others across the region or nation, and their often-hostile opposition to each other (as market competitors and political rivals). Life seemed accidental, something over which they, as separate individuals, had no control. The result was this class-in-itself did not constitute itself as a class-for-itself with its own common collective causes, a sense of solidarity with others and a political organisation. They were unable to assert their class interest in their own name, and instead of representing themselves, were represented by politicians who sought their vote and spoke in their name. Given Marx’s limited discussions about class, it is not surprising that class has been a contested concept in both Marxist and non-Marxist scholarship ever since.
For example, Marx’s statements suggest class could be defined on the basis of ownership of property (such as land) or the source of income (such as rent). Marx often refers to class as the power of one class over another (‘the unlimited despotism of one class over other classes’).55
In some writings, each mode of production has only two classes (‘Freeman and slave, patrician and plebeian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed’) but in others there are three classes with additional fractions of classes (‘The lower middle class, the small manufacturer, the shopkeeper, the artisan, the peasant, all these fight against the bourgeoisie, to save from extinction their existence as fractions of the middle class’).56
Class is sometimes considered to be an objective phenomenon defined in terms of who produces and who appropriates surplus value (‘Only the agricultural labourers, not the landowners, appear as a productive class, as a class which creates surplus-value’),57 and at other times class has also a subjective character (‘Upon the different forms of property, upon the social conditions of existence, rises an entire superstructure of distinct and peculiarly formed sentiments, illusions, modes of thought, and views of life’).58
However, since the 1970s, almost all scholarly discussion on class in capitalism has assumed the existence of only two classes: the class of the unpaid surplus value producing direct producers (the working class) and the class of the unpaid surplus value appropriating capitalist (the capitalist class).59 The landed property class, continually referred to by Marx, has been all but ignored. This book suggests the study of class would be deepened if more was understood about the origins, economic interests, organisational structures and actions of the urban landed property class in cities. Marx’s writings on landed property suggest a general framework that can be used to investigate the landed property class and its influence over cities. The framework considers the urban landed property class, its stage of development, and the strength of its influence in terms of its private ownership of land for income purposes; collective economic action (class-in-itself); collective political action (class-for-itself); and reactions to the actions of the landed property class.
First, the analysis of any urban landed property class begins by identifying those who generate income from the lease, or buying and selling, of land. This includes identifying the individuals and corporate bodies which privately own landed property (for income-generating purposes) or directly rely on these land-owners for their own income. In capitalist cities, core members of the landed property class include those who own urban land from which they generate income from the lease of their land, the buying and selling of their land, or real estate agents and others who act as middle operators to facilitate these exchanges. The members of the urban landed property class include large-scale property developers (including those operating on newly available urban land on the edge or cities and those involved in urban regeneration of existing urban land) and land speculators; real estate organisations involved in the buying, selling and leasing of land; and small-scale landowners (including ‘mum and dad’ landowners) who own one or more properties which they rent out to others. Although there are various fellow travellers of the landed property class (such as mortgage providers and other financial bodies that fund various land transactions, and the construction industry that builds or renovates buildings on the land), they are not directly involved in the capture of rent from the leasing of land and therefore may be allies but not members of the urban landed property class.
Second, the analysis of the urban landed property class focuses on what its members do, individually or collectively, to protect and promote their economic interests against its opponents (including capital, tenants and the state). This is where the urban landed property class acts a class-in-itself.
These actions may include colluding together to set fixed prices and limit price-cutting competition in the real estate industry; lobbying or bribing state officials to release (or re-zone) land for commercial use; petitioning lawmakers to change laws and regulations to strengthen their property rights over their land (and limit incursions on landowners’ rights by tenants or environmental protection obligations); making commercial deals to promote stability and limit competition within the real estate sector; and applying political pressure on the state to maximise government-funded provision of land-price-enhancing urban infrastructure (such as roads, utilities and recreation areas) and to limit or abolish the imposition of land taxes and charges by the state. The actions taken at this basic stage of class sophistication, organisation and consciousness are usually actions on or against the state, financial institutions, the construction industry and other stakeholders who are affecting the property ownership rights and the rental income capacity of the class.
Third, the urban landed property class becomes visible through its actions as a class-for-itself. Here the members of the class act proactively within non–real estate institutions. It establishes industry and professional bodies to lobby, develops training organisations, and works with the state (and others such as financial institutions) to establish acceptable industry regulations and real estate workforce wages and conditions. Instead of acting from the ‘outside’ on relevant bodies (such as the city council, land and environment courts, financial institutions, universities and the media), members of the urban landed property class promote their economic interests by directly participating in these bodies. For example, landowners and their supporters get elected to city councils and other arms of the state; become lawyers who are appointed to the land and property courts; become financial professionals involved in mortgage, investment and other land-specific financial institutions; establish real estate research and education organisations within institutions of higher education; and join the media as journalists and editors to promote news and views favourable to the economic interests of the landed property class. If successful, a conscious urban landed property class becomes an effective fraction of the ruling class, promoting its values and interests, along with all the other fractions of the ruling class. As Marx noted, mockingly, after the failure of several working-class uprisings: Soon after this the June insurrection in Paris and its bloody suppression united, in England as on the Continent, all fractions of the ruling classes, landlords and capitalists, stock-exchange wolves and shop-keepers, Protectionists and Freetraders, government and opposition, priests and freethinkers, young whores and old nuns, under the common cry for the salvation of Property, Religion, the Family and Society.60
Finally, the influence of the urban landed property class can be ascertained through the study of the resistance to the actions of the class. There can be popular resistance against the class’s attempts to make land grabs, to rezone land for their own financial benefit rather than the benefit of the urban population, or to acquire private control over new holdings of land in other ways. There can also be resistance by commercial and residential tenants and the local state when the landed property class attempts to strengthen property ownership rights and to maximise rental revenue at the expense of the land rights and economic interests of commercial and residential tenants, the construction industry, the state and the landless. In summary, it is possible to use Marx’s insights into the landed property class to identify characteristics of the urban landed property class in capitalist cities. The framework discussed here can be used as a guide for further empirical research and case studies.
The financialisation of land and fictitious capital
One of the assumptions Marx made about land in capitalism was that money is invested in land and capital for productive purposes; that is, to produce more capital. The alternative was usury, where money is lent for consumption or other purposes in return for interest which must be paid on a definite date; credit that does not make any contribution to the reproduction of capital.61
However, with the financialisation of land, the assumptions of land being used for production, and of money only being invested in capitalist production, must be revised. The financialisation of land came to prominence with the international financial crisis that originated in the US economy in 2007–8,a financial crisis which is also known as the global financial crisis (GFC) or the subprime mortgage crisis.
It is beyond the scope of this book to analyse the GFC.62 However, a little history is needed to show how the financialisation of land developed within the capitalist mode of production.
Beginning in the 1990s in the United States, billions of dollars were diverted from investment in commercial land and productive industries. Instead, money was funnelled into mortgages to assist many working-class people to buy their own home. Bankers formed an alliance between the finance, insurance and real estate sectors to encourage working people (and even people who did not have a job) to take out a mortgage to buy a house-and-land package. The rationale was that land and house prices would continually increase and/or taxes on land and homes would reduce. In either case, buying a house made good financial sense. When the Federal Reserve cut interest rates, mortgage rates fell and home refinancing surged in the United States from $460 billion in 2000 to $2.8 trillion in 2003, despite stagnant wages.63
The financial sector calculated it could not lose. If people successfully paid off their home, the mortgage providers would be repaid their loan plus interest. If borrowers defaulted on their mortgage repayments, the financial institutions would foreclose, repossess the ‘asset’, sell it at its higher price, and recoup the cost of the mortgage. The finance sector also packaged individual mortgages into residential mortgage-backed securities, which were repackaged into ‘collateralised debt obligations’ (CDOs). These were given triple-A ratings by credit rating agencies and sold to investors who believed these were high-quality, safe investments. There was a burgeoning global demand for these residential mortgage–backed securities that offered seemingly safe and high returns which were based on American real estate with apparently ever-rising prices.
When house prices fell, it created trillions of dollars of problematic securities, debt and derivatives resting on real estate assets, the collapse of financial institutions, thousands of people losing their homes, a large rise in unemployment and economic losses that affected countries around the world. It was ‘the worst financial crisis since the Great Depression’, and the subsequent global recession with its contraction in annual real per capita global GDP (and broad-based weakness in other key indicators of global economic activity) was the deepest and most synchronised in almost a hundred years.64
A key factor in the GFC was a new capitalist phenomenon: treating land as a financial asset. For example, banks capitalised land rent into interest- bearing loans;65 land was treated as mortgage-backed security issued by real estate financing institutions;66 and markets were created to buy and sell these mortgage-backed securities.67
In the Global South, a different road was taken to ‘financialise’ land. In 2017, the United Nations Human Rights Commission (UNHCR) reported on the ‘financialisation’ of housing that was taking place in the Global South.68 In some instances, large companies (often with the support of governments) were carrying out mass forced evictions of people from their traditional housing suburbs to make way for new luxury developments. In other instances, corporations would purchase real estate in cities and, expecting a return on their ‘investment’, would raise house prices and rent charges with the effect that local people were pushed out of their communities because they could no longer afford to live there. In Ethiopia, for example, the development of the financial sector did not stimulate the growth of industrialisation but instead stimulated real estate companies and the construction sector, leading to an inflated real estate market, inequality and higher debt burdens.69
Land finalisation in the Global South was facilitated by market liberalisation and deregulation in the 1980s which removed strong protectionist trade policies, making it easy for global financial institutions to buy up land in the Global South, especially after decades of colonial rule or strong protectionist trade policies in Africa.70 With legislation favouring foreign investment, private markets and the use of land for profit (rather than for social benefits such as housing), urban development was led by markets rather than government, which led to the uncoordinated development of cities, and mismatches between urban population growth and the use of urban land.
The financialisation of land also encouraged land grabs by centralised multinationals or decentralised transnational companies aiming to profit from commercial land transactions. While many of these large companies are involved in the production and export of food, animal feed, biofuels, timber and minerals, most have expanded operations to include the appropriation of land. In Brazil, for example, speculative land acquisitions have historically played a role in the portfolio of many large companies, but with the deregulation of financial markets and the financialisation of land acquisition became more intensive.71 In many instances, the financial beneficiaries of these land grabs are private equity funds, pension funds and special-purpose vehicles in the Global North.72
The financialisation of land in the Global North and South was not some-thing Marx considered, but his approach to land can help to explain these phenomena. Marx expected banking to be subordinated to the needs of industrial capitalism.73 That is, capital would invest in productive industries. With the financialisation of land, however, money capital (M) was ‘invested’ into consumption goods (workers’ housing). Financiers treated real estate as if it was an asset, like capital, capable of generating new, expanded wealth. In fact, land and housing were ‘fictitious capital’.
Fictitious capital is a form of credit where money-capital is ‘invested’ in non-existent capital (assets which use money without producing any additional capital stock). There are three forms of fictitious capital: credit money, government bonds, and shares.74 Specifically, fictitious capital ‘consists of claims (bills of exchange), government securities (which represent spent capital), and stocks (drafts on future revenue)’.75 In all these cases, money is ‘invested’ to earn more money (interest, bond yields, mortgage fees and so on) but without expanding capital. Fictitious capital, in other words, ‘represents nothing more than accumulated claims, or legal titles, to future production whose money or capital value represents either no capital at all, as in the case of state debts, or is regulated independently of the value of real capital which it represents’.76 These cases of the financialisaton of land have clear ramifications for urban policy, and in particular, for urban housing.
First, in capitalism, if policymakers wish to see housing provided by the private sector, these examples provide strong evidence that the finance, insurance and real estate sectors need to be strongly regulated to ensure they provide mortgages and housing at affordable prices. The evidence is clear that the alternative, of ‘free’ (unregulated) markets, will unshackle capitalist incentives which will drive people to maximise financial returns rather than produce affordable housing to those in need.
Second, if cities wish to promote economic growth, regulatory and financial incentives to expand the construction of new houses will also result in urban jobs and capital growth. The alternative, of providing incentives for people to buy and sell existing housing stock, may generate short-term revenue for, and employment in, the finance, insurance and real estate sectors, but there will be no appreciable growth in the economy in the longer term.
Third, and more radically, the cases of the financialisation of land raise questions about whether the private sector can ever provide housing for low-income residents, and whether such housing can only be provided by state or by community-owned organisations. This matter will be returned to in Chapter 7.
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